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TrustFinance
Oct 15, 2026
19 min read
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Before pressing Buy or Sell every time, there are two questions you should already have answers to: If the price moves against you, how much are you willing to lose? And if the price moves as you expect, where will you exit? Stop Loss is the answer to the first question, and Take Profit is the answer to the second.
This article explains what Stop Loss is, what Take Profit is, which price side the platform checks before closing a position (this causes many to hit Stop Loss even when the chart hasn't reached it), when set levels can change automatically, and how to read Risk:Reward to understand how many trades you need to win to break even. All numerical examples are hypothetical and not recommendations on specific settings.
Stop Loss is an order linked to an open position (or a pending order) to automatically close the entire position when the price moves against it and reaches a specified level. Its goal is to limit the loss of that particular trade in advance. However, the set level is merely a trigger point; the actual closing price might be worse.
The MetaTrader 5 manual states that when the price touches the Stop Loss level, the entire position is closed, not partially. This order is not standalone; it must always be linked to a position or a pending order (MT5 Help, General Concepts). In practice, many refer to it simply as SL.
Take Profit is an order to close a position when the price reaches a predefined profit target. The rules are almost identical to Stop Loss: it's linked to a position or pending order and closes the entire position when triggered. The only difference is the direction. If asked what TP is, the shortest answer is the profit exit point decided before entering the trade.
What people often forget is that Take Profit closes the entire position. If you want to partially close half at the first target and hold the rest, you must close it partially yourself or divide it into multiple positions from the start.
Forex prices always have two sides: Bid is the price at which you can sell, and Ask is the price at which you can buy. The difference between these two prices is the spread. The MT5 manual states that buying occurs at the Ask price and selling occurs at the Bid price (MT5 Help, General Concepts). This rule determines when SL and TP will be triggered.
A Buy position is closed by selling, so the platform checks the Bid price to determine if SL or TP has been hit. SL must be below the current Bid, and TP must be above the current Bid.
A Sell position is closed by buying, so the platform checks the Ask price instead. SL is above the current Ask, and TP is below the current Ask.
The confusing point is the chart. The MT5 manual states that charts are built using the Bid price (MT5 Help, Charts). Therefore, traders in a Sell position might see the price line on the chart not yet reaching their Stop Loss, but their position has already been closed. This happens because the Ask price, which is higher than the Bid by the spread, touched the level first. During periods when the spread widens, such as during major news events or thin markets, this possibility increases.
Let's look at a hypothetical example (numbers for illustration, not real data). A trader sells GBP/USD and places a Stop Loss at 1.27200. During normal periods, the spread is around 1.5 pips. When news breaks, the spread widens to 6 pips. The price on the chart (Bid) is at 1.27150, still 5 pips away from the SL. However, the Ask price is at 1.27210, which has already surpassed the level. Consequently, the position is closed, even though looking only at the chart would suggest the price never touched the Stop Loss.
| Buy Position | Sell Position | |
|---|---|---|
| Open position at price | Ask | Bid |
| Platform checks SL/TP with price | Bid | Ask |
| Stop Loss placement | Below current price | Above current price |
| Take Profit placement | Above current price | Below current price |
| What you see on the chart (Bid chart) | Matches the price used for decision | Differs from the price used for decision by the spread |
Source: MT5 Help, General Concepts and MT5 Help, Charts
Another less-discussed scenario: The MT5 manual states that if, when an SL or TP is triggered, the closing order is rejected or cannot be executed, the order will not be deleted. Instead, it will be re-executed at the next tick where the price still meets the condition (MT5 Help, General Concepts). This means the position might close later than the initial price touch, and the resulting price could have changed.
Other markets outside of Forex also use different prices to determine if a stop has been hit. The U.S. SEC Investor Bulletin states that some markets use the last traded price, while others use bid/ask prices, and advises asking your service provider which standard they use (SEC Investor Bulletin). MT5 itself notes that assets traded on exchanges typically use the Last price according to that market's rules.
Many people assume that once a Stop Loss is set, it will remain there until manually changed. While this is mostly true, the MT5 manual outlines SL/TP inheritance rules that are important to know (MT5 Help, General Concepts).
The last point is the most crucial to be aware of. A netting account combines all orders for the same currency pair into a single position. If you open an additional position without setting an SL in the new order, the previous level might disappear without you realizing it (the manual states that the platform will pre-fill the old SL/TP values in the order window to prevent errors, but one-click trading will not touch the old values). Hedging accounts separate each position, so this issue does not occur in the same way.
As for pending orders with SL/TP set, when they are opened as positions, those positions will inherit the SL/TP specified in the order (MT5 Help, Performing Deals).
Once Stop Loss and Take Profit are fully set, that trade immediately has two figures: the distance you are willing to lose and the distance you hope to gain. Risk:Reward (RR) is the ratio of these two distances. It doesn't tell you which trade will win, but it tells you how many times your potential gain is compared to your potential loss if you win.
RR = Distance from entry price to Take Profit ÷ Distance from entry price to Stop Loss
Hypothetical example (not real data and without considering spread): A trader buys GBP/USD at 1.27000, setting a Stop Loss at 1.26750 (25 pips away) and a Take Profit at 1.27500 (50 pips away). This trade has an RR of 1:2, meaning risking 1 unit for a chance to gain 2 units.
If you include the spread, the picture changes slightly. Assume a 2-pip spread. The trader buys at Ask 1.27000, while the Bid is at 1.26980. Since SL and TP for a Buy position are based on the Bid price, the Bid price needs to rise 52 pips to hit Take Profit, but only fall 23 pips to hit Stop Loss. The profit/loss when closed remains 50 and 25 pips respectively, but the probability of the price reaching each point is not the same as what's seen on the chart. The wider the spread relative to the SL distance, the more pronounced this effect becomes.
This is why RR is more important than it seems. If every trade uses the same RR, there's a minimum win rate required to break even, calculated by the formula:
Break-even Win Rate = 1 ÷ (1 + R)
The formula's derivation is: If you win W trades out of the total, you gain W × R units, and lose (1 − W) × 1 unit. The break-even point is when these two values are equal.
| RR per trade | Gain when winning (multiples of loss) | Minimum break-even win rate (before costs) |
|---|---|---|
| 1:1 | 1x | 50% |
| 1:1.5 | 1.5x | 40% |
| 1:2 | 2x | 33.3% |
| 1:3 | 3x | 25% |
The numbers in the table are calculated from the formula above and do not include spread, commission, and swap, which would further increase the actual required win rate.
After reading this table, don't immediately conclude that a higher RR is always better. A more distant Take Profit also has a lower chance of being hit, so the actual win rate often decreases accordingly. No single ratio works for every plan. What the table helps with is checking if your existing plan is reasonable. For example, if you set an RR of 1:1 but your trading history shows a win rate of less than half, the numbers already indicate a long-term loss.
There are no ready-made numbers for how to set SL and TP. A level suitable for one person might not be suitable for another, as timeframes, assets, and acceptable loss amounts differ. This section therefore discusses the thought process and origins of these levels, not specific values to use.
The sequence most people follow is to choose lot size first, then find a Stop Loss placement that keeps the loss within their comfort zone. This often results in the SL being squeezed too tightly against the price structure. The reverse sequence works like this:
Continuing the hypothetical example from above: SL is 25 pips away, and the trader intends to lose no more than $50. For GBP/USD, which is quoted in dollars, 1 standard lot is 100,000 units. A 1-pip (0.0001) movement equals $10. Therefore, a 25-pip distance equals $250 per lot. The corresponding size is 50 ÷ 250 = 0.2 lot. If the SL needs to be wider according to the price structure, the position size must be reduced, not the SL moved closer.
Each method has different trade-offs, and many people combine several approaches. For detailed techniques on placing Stop Loss using support/resistance, moving averages, ATR, and Fibonacci, you can read more at Stop Loss Placement Techniques
Another limitation is the minimum distance. Each asset has conditions specifying how far SL/TP must be from the current price, which the broker defines in the contract specification. If set too close, the Modify button on MT5 will be disabled until the values are corrected (MT5 Help, Performing Deals).
Stop Loss is a tool to limit losses, not a tool to lock in a price. This distinction must be understood.
All four terms contain 'stop' or relate to exit points, but their functions differ. This table summarizes the main differences.
| Order Type | Purpose | Level moves automatically? | Where it operates (MT5) | When price hits level |
|---|---|---|---|---|
| Stop Loss | Limits position loss | No | On the server | Closes entire position at market price; may deviate from level |
| Take Profit | Closes when profit target is reached | No | On the server | Closes entire position |
| Trailing Stop | Moves Stop Loss with profitable price movement | Yes, moves one-way with price | On the trader's platform | Latest Stop Loss level closes position |
| Stop-Limit | Opens a position when price passes a stop point, controlling the price | No | As a type of pending order | Places a limit order at the specified price; may not fill if price gaps past |
Source: MT5 Help, General Concepts and SEC Investor Bulletin
Trailing Stop operates within the platform; if the program is closed, it stops moving. Details can be found in What is Trailing Stop, How to Set It, and How It Differs from Stop Loss. As for Stop and Stop-Limit as entry orders, compared to Market and Limit orders, they are covered in How Many Types of Forex Orders Are There? How Do Market, Limit, and Stop Differ?
Please Note: Forex trading is not yet licensed or regulated by any authority in Thailand. The Bank of Thailand has no policy to issue licenses for retail Forex businesses (Reference: Thai PBS), and the SEC itself confirms that Forex business is not under the SEC's supervision but rather under currency exchange control laws (Reference: The Standard).
This article is provided for general knowledge only, not as personal investment advice, and does not guarantee any returns. Traders should conduct further research and assess risks independently before making any decisions.
SL stands for Stop Loss, which is the cut-loss point. TP stands for Take Profit, which is the profit-taking exit point. On trading platforms, both fields are in the same order window, and once set, they appear as level lines on the chart. If a value is set to zero or left blank, it means that level is not set.
On MT5, yes, it still works. The manual states that Stop Loss and Take Profit reside on the server, so they remain active even if the platform is closed. This differs from Trailing Stop, which operates on the trader's platform and stops moving when the program is closed (MT5 Help, General Concepts). Other platforms may be designed differently, so you should check the manual for the platform you use.
There's no mandatory rule. Platforms allow opening positions without setting an SL. However, a trade without a Stop Loss means its maximum potential loss is not predefined. It depends on how far the price moves before the trader decides to close it manually or before margin runs out.
Yes. On MT5, you can enter both values in the order window for both market orders and pending orders. When a pending order is opened as a position, that position will inherit the specified SL/TP (MT5 Help, Performing Deals).
Yes. On MT5, right-click on the position in the Trade tab and select Modify or delete, or drag the level lines on the chart, as long as the new level is beyond the minimum distance set by the broker from the current price. Step-by-step screenshots are available in the manual MT5 Help, Performing Deals.
Yes. Stop Loss is a trigger to close a position, not a guaranteed price. If the next available market price is beyond the set level, such as at the market open at the start of the week or during high-impact news, the position will be closed at that price, resulting in a larger loss than calculated.
There is no single 'good' number for everyone. RR must be considered alongside your plan's win rate. An RR of 1:3 with a 20% win rate still results in a loss, while an RR of 1:1 with a 60% win rate is profitable before costs. Use the formula 1 ÷ (1 + R) to check what win rate your current plan needs to break even.
For Forex on MT5, yes, they remain. The manual states that when a position is rolled over to the next day in OTC markets, SL and TP levels do not change. This differs from exchange-traded assets where levels are reset (MT5 Help, General Concepts).
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