Take profit (TP) and stop loss (SL) are the two exit prices every trade needs before it opens. TP closes the trade in profit when price reaches the target. SL closes the trade at a defined loss when price moves the wrong way.
TP is the price at which your position closes automatically with a gain. It is set above the entry for a BUY trade and below the entry for a SELL trade. When price reaches TP, the broker closes the position and credits the profit to your account.
SL is the price at which your position closes automatically with a controlled loss. It prevents a small loss from becoming an account-destroying loss. SL is set below the entry for a BUY trade and above the entry for a SELL trade.
Take profit and stop loss use fixed, instrument-specific distances tuned to each market's typical volatility:
This creates a reward-to-risk ratio of about 1.6 to 1 on every trade, you risk 1 unit to aim for about 1.6.
Markets can gap on news events. Without SL, a trade can run hundreds of pips against you before you can manually close it. Always set SL at the moment you open the trade, never plan to "watch it."