TP and SL in trading: how take-profit and stop-loss work

Every trader eventually faces the need to protect their positions and lock in profits. That’s exactly what take-profit and stop-loss orders are for — two automatic tools that help you exit a trade at a predetermined price without constantly monitoring the market. Essentially, this is an automated trading system where you set two levels in advance: one for taking profits and another for limiting losses.

The principle is simple: you specify a trigger price and an order placement price. When the market price reaches the trigger, the system automatically places an order at the specified price. This allows participation in rapid market movements while simultaneously protecting capital from unexpected reversals.

How take-profit and stop-loss orders help control risks

The main value of these tools lies in trading discipline. Take-profit allows you to secure gains at the right moment without waiting for further confirmation. When the price moves in your favor and reaches the target level, the order triggers and automatically locks in profit.

Stop-loss works in the opposite direction — minimizing losses in case of an unfavorable scenario. If the market moves against your position, it automatically closes it at the set level, preventing losses from expanding. This is critically important in volatile markets where quick decision-making may be insufficient.

How TP/SL orders work

The system offers two types of execution. A stop order locks (freezes) your margin and position until triggered. The trigger order works differently — it does not require margin reservation, freeing up capital for other operations.

When the trigger is activated, the system checks whether it can place the order at the price you specified. If market conditions have changed and that price is no longer available, the order will be placed at the best available price. This is an important point in fast-moving markets, where slippage can be significant.

When take-profit and stop-loss may not trigger

Despite their convenience, these tools have limitations. First, if your position size exceeds the platform’s allowable limits, the order may not execute at all. This is a safeguard against excessive risk concentration.

Second, during sharp price jumps (gaps) and extreme volatility, an order may be executed with delay or at a price significantly different from the trigger. In such conditions, quickly closing a position can be done using the “Close All” function, which uses the current market price.

Third, if you have orders placed in opposite directions simultaneously, after a stop-loss triggers, they may automatically open a new position. This can disrupt margin balance and block the execution of the main TP/SL order. Therefore, it’s important to check your active orders before opening complex multi-level positions.

Risk management through take-profit and stop-loss is not just a convenience but a necessity in modern trading. Proper use of these tools helps preserve capital and participate in market movements without emotional interference.