Before you read on: this article is general education, not financial advice. It does not consider your objectives, finances or experience. Do your own research, check any broker on the register of its regulator, and speak to an independent adviser if you are unsure.
Last updated 29 October 2026.
A stop-loss closes a losing trade at a set price. A take-profit closes a winning trade at a set price. Together, they define your plan before you enter: how much you are willing to lose, and how much you aim to gain. Traders who skip these orders usually end up holding losers and cutting winners.
Why a stop-loss is not optional
Without a stop-loss, your risk is set by the market, not by you. A position can move far beyond what you expected, and the loss can grow until your margin is exhausted. A stop-loss makes your worst-case loss known before you enter.
Placing a stop-loss where the idea is wrong
The stop should sit at the level where your reason for the trade no longer holds. For a trade based on support, that is usually just below the support level. For a trade based on a trend, it may be below the last swing low. Avoid placing stops at round numbers, where many other traders also place theirs.
Worked example: you buy EUR/USD at 1.0850 because the price bounced from support at 1.0820. Your stop goes at 1.0815, just below the support. If the price breaks through the support, your reason is gone, and the trade closes for a 35-pip loss.
Sizing the trade from the stop
Once the stop is set, calculate the lot size from the money you are willing to lose. This is covered in our guide to pips and lot sizes. A wider stop means a smaller lot size for the same risk. Never widen a stop after entry to avoid a loss.
Setting a take-profit
A take-profit should be based on the chart, not on a wish. Use the next resistance level, a measured move, or a fixed multiple of your stop distance. Many traders aim for at least twice the stop distance, so that a losing trade does not wipe out several winners.
Worked example: the stop is 35 pips away. A take-profit at 70 pips gives a reward-to-risk ratio of 2 to 1. At that ratio, you can be right less than half the time and still break even before costs, although spreads and swaps reduce the result.
Trailing stops and locking in gains
A trailing stop moves toward the price as the trade moves in your favour, and it does not move back. It is a way to protect profits without fixing an exit. The trade-off is that a trailing stop can close a trade during a normal pullback, so it works best in clear trends.
Some traders move the stop to break-even once the trade has moved a set distance in their favour. This removes the risk of losing the initial stake, but it can also close the trade on a minor pullback.
Common mistakes
- Moving the stop further away. This turns a small loss into a larger one.
- Removing the stop because the price is close. Being near the stop is exactly when it does its job.
- Placing the take-profit too close. A small target can leave a large loss unbalanced.
- Forgetting slippage. A stop-loss fills at the next available price, not always the exact stop level.
Gaps and weekend risk
A stop-loss cannot protect you from a gap, where the price opens far beyond your stop. Gaps happen most often at the weekend reopening and around major news. If you hold positions over the weekend, the actual loss may be much bigger than your planned stop. Read the weekend section in our guide to forex market hours.
Practice exercise
On a demo account, enter a trade with a stop and a take-profit, and calculate the reward-to-risk ratio before you place it. Record the outcome and whether the stop or the target was hit. After 20 trades, compare your average result with your planned ratio.
Summary
A stop-loss limits the damage from a wrong trade, and a take-profit defines a realistic goal. Set both before you enter, size the trade from the stop, and do not move the stop to avoid a loss.
A full example from entry to exit
Here is one trade, followed from planning to close, using every idea in this guide. The account balance is $5,000, and the risk per trade is 1%, which is $50.
Setup. EUR/USD has bounced twice from support at 1.0820 on the daily chart, and a bullish candle has formed at that level. The planned entry is 1.0850.
Stop-loss. The stop goes at 1.0815, just below the support, which is 35 pips from entry. Stops at 1.0820 would sit exactly on the level where many other traders also place theirs, so the buffer below it avoids that cluster.
Position size. Risk is $50 and the stop is 35 pips, so the risk per pip must be $50 ÷ 35, or about $1.43. A mini lot is worth $1 per pip, so the position is about 1.4 mini lots. Round down to one mini lot plus a smaller position, or simply one mini lot, which risks $35 and keeps the loss below the planned amount.
Take-profit. The next resistance is at 1.0920, which is 70 pips away. The reward-to-risk ratio is 70 ÷ 35 = 2 to 1, which is a reasonable minimum for this setup.
Trade management. Once the trade reaches 1.0885, a 35-pip gain, the stop moves to break-even at 1.0850. This removes the risk of losing the original stake, although it may close the trade on a pullback.
Outcome A: target hit. The price reaches 1.0920 and the take-profit fills. The gain is 70 pips on one mini lot, about $70 before costs. Spreads and any swap charges reduce the net result.
Outcome B: stop hit. The price falls through the support and the stop fills at 1.0815. The loss is about $35 on one mini lot, plus the spread. The result matches the plan. The loss is small, and the trade was taken for a clear reason.
Outcome C: gap. Over the weekend, news causes the market to open at 1.0780. The stop becomes a market order at the first available price, around 1.0780, for a loss of about 70 pips, or about $70. The loss is double the plan, and this is why weekend exposure must be part of the decision before the trade is opened.
Each outcome teaches something different. The first confirms that the plan can pay. The second confirms that losses can be kept small. The third shows that no stop protects against every move, and that a plan must consider gaps.
Why a stop must be set before the entry
Setting a stop after you enter invites a decision made under pressure. Traders who set stops after entry tend to place them where a loss feels acceptable, not where the idea is wrong. Setting the stop first, based on the chart, keeps the decision objective. If you cannot find a sensible stop level, the trade is not ready.
How stops interact with the spread
A stop-loss on a buy is triggered by the bid, not the ask. A stop placed exactly at a round number or a previous low can be hit by the spread alone, even if the price has not moved beyond it in the middle of the market. Add a small buffer, such as a few pips beyond the level, to allow for this.
Worked example: EUR/USD bid is 1.0815 and ask is 1.0817. A stop-loss set at 1.0815 on a long position triggers when the bid reaches 1.0815. The spread is already close to that level during volatile moments, so a stop at 1.0814 or 1.0813 can give the trade room to breathe, at the cost of a slightly larger loss if it is hit.
Take-profit placement and realistic targets
A take-profit set at a level the market has rarely reached may never fill. A target that is too close may close the trade before the move can develop. The best targets are usually the next clear resistance or support, a measured move based on a prior swing, or a fixed multiple of the stop distance.
Worked example: the stop is 35 pips and the target is 105 pips, a 3-to-1 ratio. If the market reaches 70 pips in your favour and stalls, you may decide to take partial profits. Partial exits reduce the total gain, but they also reduce the risk of a reversal taking back the whole move.
Managing a trade as it moves
- Move the stop to break-even only once the trade has covered a clear distance, such as your original risk.
- Use a trailing stop in a strong trend, but review it when the trend weakens.
- Take partial profits at the first major level, then leave the rest to run with a stop.
- Never move a stop further from the entry to avoid a loss.
- Record every adjustment and the reason for it, so you can review it later.
Stop-loss and take-profit on different account types
Some brokers allow you to attach stops and targets when you place the trade, while others require you to add them afterwards. On some accounts, stops are guaranteed for a fee, and on others they are not. Check the order types and any guarantees your account supports, because the answers affect your planned risk.
Common questions
Should every trade have a take-profit? Most traders use one, but some prefer to manage exits manually. Either approach works if the exit rules are written down and followed.
Can I use a stop-loss on a demo account? Yes. Practise the stop placement and the fill behaviour on demo, then notice how often slippage occurs on live trades.
What if the market gaps through my take-profit? A take-profit fills at the target or better, so a gap in your favour can fill at a better price. A gap against you does not trigger a take-profit, so it has no effect on a losing exit.
Practice exercise: a stop and target journal
For the next 20 trades on a demo account, record the stop distance, the target distance, the reward-to-risk ratio, the result and whether the stop or target was hit. Calculate the average result. Compare your actual reward-to-risk with your planned ratio, and check whether your stops are being hit by normal noise.
Summary
A stop-loss defines the loss you accept before you enter. A take-profit defines the gain you aim for. Set both from the chart, size the trade from the stop, and manage the trade without moving the stop away from your entry. Allow for slippage, the spread and gaps, and check the trade plan again before each weekend.
Sources and further reading
We checked the regulatory claims in this article against the following primary sources. Rules change, so check the current version before you rely on any figure.
ESMA press release, 27 March 2018 (leverage caps, 50% close-out and negative balance protection for EU retail CFD clients, and the 74-89% loss statistic).
FCA statement on the ESMA measures (the UK position).
FCA policy statement PS19/18 (permanent UK restrictions on retail CFDs).
Pip and lot definitions are market conventions rather than regulatory rules. Check the contract specification for each instrument with your broker.
Risk warning: trading forex and CFDs involves a high risk of loss, and most retail accounts lose money. This article is general education, not financial advice. Read our disclaimer.