Take Profit and Stop Loss (TP/SL) Explained
Take-profit (TP) and stop-loss (SL) are orders that automatically close a position at predefined prices — TP to lock in a profit target, SL to cap a loss. Together they turn a trade plan into rules the exchange executes for you, removing emotion from your exits.
How take-profit works
A take-profit order closes your position once price reaches your target, securing the gain without you watching the chart. It's how you bank profit consistently instead of giving it back.
How stop-loss works
A stop-loss closes your position at a set price to limit the loss if the market moves against you. Setting it where your trade idea is invalidated is the foundation of risk management.
Setting a sensible risk-reward
Place TP and SL so the potential reward outweighs the risk — a 2:1 reward-to-risk ratio means winners are twice your risk, so you can be profitable even with a sub-50% win rate.
Frequently asked questions
Should I always use a stop-loss?
Yes. A stop-loss caps your downside and is essential in leveraged futures where losses compound quickly.
What is a good risk-reward ratio?
Many traders target at least 2:1 — risking one unit to make two — so a moderate win rate still yields profit.
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