Stop loss and take profit
What you learn in 3 minutesThis lesson shows two orders you can attach to any open position: a stop loss, which closes the trade at a loss you pick in advance, and a take profit, which closes it at a profit you pick in advance.
0.10 lots, 20 pip stop and 40 pip target
| Step | Amount | Note |
|---|---|---|
| Position size | 0.10 lots of EUR/USD | 0.10 of one standard lot, which is 100,000 units |
| Value of one pip | ₱58 | one pip on 0.10 lots is 1 unit of the quote currency (0.10 × 100,000 × 0.0001 = 10, then × 0.10); converted at an assumed rate of ₱58 to 1 unit of the quote currency |
| Stop loss distance | 20 pips | placed below the entry price, chosen before the trade opens |
| Loss if the stop is hit | −₱1,160 | 20 pips × ₱58 per pip |
| Take profit distance | 40 pips | placed above the entry price, chosen before the trade opens |
| Profit if the target is hit | +₱2,320 | 40 pips × ₱58 per pip |
The conversion rate used here is an example only and changes with the market. Your broker may round pip values, charge a spread when you open and close, and add commission or swap; those charges vary between brokers and reduce the figures shown.
The mistake people make here
The common mistake is to set the stop after the trade has already moved against you, or to move it further away to avoid taking the loss. That turns a planned loss into an unknown one. Decide both the stop and the target before you enter, and write down the peso amount you are risking. If that amount is more than you are willing to lose on a single trade, reduce the lot size instead of widening the stop.Check yourself
On 0.10 lots of EUR/USD, with one pip worth ₱58, what is the loss if a 15 pip stop is hit?
15 pips × ₱58 per pip = ₱870.
If the take profit is 45 pips away on the same 0.10 lot position, what is the profit at ₱58 per pip?
45 pips × ₱58 per pip = ₱2,610.
A stop is 25 pips away and the reader wants to risk no more than ₱1,000. At ₱58 per pip on 0.10 lots, is the risk acceptable?
25 pips × ₱58 = ₱1,450, which is above ₱1,000, so the risk is not acceptable; the lot size would need to be reduced.