Stop loss and take profit
What you learn in 3 minutesA reader asked: if I put a stop loss and a take profit on a trade, how do I know what I lose or make before I even click? This lesson shows you how to attach two instructions to a position: one closes it at a loss you chose in advance, the other closes it at a profit you chose in advance. Using USD/ZAR at about 18.4100 on 0.10 lots, a 20-point stop is roughly R20 and a 40-point take profit is roughly R40, so you can see the rand amounts before you trade.
20 points on 0.10 lots — what it costs in rand
| Step | Amount | Note |
|---|---|---|
| Entry price | 18.4100 | The USD/ZAR price when the trade opens. |
| Stop loss | 20 points away | If price moves 20 points against you, the position closes. |
| Loss at stop | −R20 | 20 points × 0.10 lots × R10 per point = R20. |
| Take profit | 40 points away | If price moves 40 points in your favour, the position closes. |
| Profit at target | +R40 | 40 points × 0.10 lots × R10 per point = R40. |
Your broker may round the exact point value, charge a spread or commission on top, and quote a slightly different price when the order fills. Check your broker's contract specifications for the exact rand value per point.
The mistake people make here
The common mistake is to set a stop loss and take profit without checking what those point distances mean in rand on your lot size. People see 20 points and think it is small, then are surprised when the loss is larger than expected because they traded a bigger lot. Always multiply points by lot size and the rand value per point before you place the trade. If the rand loss is more than you are willing to lose on one trade, reduce your lot size or widen the stop only if your plan allows it.Check yourself
On 0.20 lots of USD/ZAR, a stop loss is 15 points away. What is the loss in rand if the stop is hit?
15 points × 0.20 lots × R10 per point = R30 loss.
On 0.10 lots, a take profit is 60 points away. What is the profit in rand if it is reached?
60 points × 0.10 lots × R10 per point = R60 profit.