Stop loss and take profit
What the two orders actually do once the trade is open
A stop loss is an instruction that sits with your open position. It tells the broker to close the trade if the market moves a set distance against you. A take profit does the same on the other side: it closes the trade if the market moves a set distance in your favour. Neither order cares what you hope will happen. They act on price alone.
You choose both distances before you click. On USD/ZAR at about 18.4100, one point is the fourth decimal place, so a move from 18.4100 to 18.4120 is 20 points. If you sell, a rise of 20 points hits your stop loss. If you buy, a fall of 20 points hits it. The take profit sits on the opposite side of your entry price.
The orders stay with the position until one of three things happens. Price reaches the stop, price reaches the take profit, or you close the trade yourself. If you close early, both orders are cancelled. The broker does not keep them for a later trade. This is why the rand amount you see before you click is the amount you have chosen to accept, not a forecast.
How the rand loss and rand profit are fixed before the trade
The rand value of a point depends on your lot size. On USD/ZAR, one point on 0.10 lots is about R10. That figure comes from the contract size, not from the distance you pick. So a 20-point stop on 0.10 lots is about R20, and a 40-point take profit is about R40. The two numbers are set the moment you place the orders.
If you change the lot size, the rand value changes in step. On 0.20 lots, one point is about R20. A 15-point stop is then about R30, and a 60-point take profit is about R60. The point distances can stay the same while the rand amounts double. That is why the same 20-point stop can feel small on one trade and large on another.
Your broker may round the exact point value. It may also charge a spread or commission on top, and the price when the order fills can differ slightly from the price you saw. So the rand figure you calculate is close, not exact. Check your broker's contract specifications for the precise rand value per point on USD/ZAR.
Choosing distances that match the money you are willing to risk
Start from the rand amount, not the point distance. Decide the most you are willing to lose on one trade, then work backwards. If you are willing to lose R30 and one point on your lot size is worth R10, your stop can be 3 points away. If that feels too tight for the market's normal movement, reduce your lot size instead of widening the stop.
A take profit is chosen the same way, but it does not have to match the stop in points. You might set a 20-point stop and a 40-point take profit. That does not mean you will win twice as often. It only means that when the take profit is reached, the rand gain is about twice the rand loss. The market decides which order is hit.
Write both rand amounts down before you click. If the stop loss is more than you are willing to lose on one trade, reduce your lot size. Widen the stop only if your plan allows it and you have recalculated the rand loss. Never move a stop loss further away after the trade is open to avoid taking the loss you agreed to.
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.
Doing it once, step by step
You are about to place a stop loss and a take profit on a USD/ZAR trade, once, in order, checking the rand amounts before you click. Follow the steps below in the order given.
- 01
Decide your maximum rand loss for this trade
Choose a rand amount you are willing to lose on one trade. This is your risk limit. Do not choose a point distance first. The rand amount sets the limit you will work within.
- 02
Find the rand value per point for your lot size
Check your broker's contract specifications for USD/ZAR. On 0.10 lots, one point is about R10. On 0.20 lots, it is about R20. Use the figure your broker gives, not a general rule.
- 03
Calculate the stop distance in points
Divide your rand risk limit by the rand value per point. If you will risk R30 and one point is R10, the stop distance is 3 points. If that distance is too small for normal market movement, reduce your lot size and recalculate.
- 04
Choose a take profit distance in points
Pick a distance that gives a rand profit you are comfortable with. Multiply the points by the rand value per point. A 40-point take profit on 0.10 lots is about R40. The take profit does not have to match the stop distance.
- 05
Enter both orders before you open the trade
Attach the stop loss and take profit to the position as you place it. Check the rand amounts shown on the order ticket. If either amount is wrong, adjust the points or the lot size before you click.
- 06
Leave the orders alone once the trade is open
Do not move the stop loss further away to avoid a loss. Do not remove the take profit hoping for more. The orders close the trade at the amounts you chose. If you close early, both orders are cancelled.
The mistake most 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.
Questions that come up next
If my stop loss is hit, can the broker close my trade at a worse price than I set?
Yes, it can. A stop loss is an instruction to close at the market price once your chosen level is reached. In fast markets, the price can jump past your level before the order is filled. This is called slippage. Your loss can be larger than the rand amount you calculated. Brokers often state this in their terms.
Do I have to set both a stop loss and a take profit on every trade?
No, you do not have to set either. Many brokers let you open a trade with no stop loss and no take profit. But without a stop loss, your loss is not fixed in advance. Without a take profit, your profit is not fixed in advance. You can also add or change them after the trade is open, if your broker allows it.
What happens if the market moves to my stop loss and my take profit at the same time?
That cannot happen on a single price. The two orders sit on opposite sides of your entry price. Price must move one way to reach one, and the other way to reach the other. Only one can be hit first. If price touches both levels during very fast up and down moves, the first one reached is triggered.
Can I move my stop loss after I open the trade?
Yes, most trading platforms let you change or cancel a stop loss while the trade is open. You can move it closer to your entry price to reduce the rand risk, or further away to give the trade more room. Moving it further away increases the amount you can lose. Moving it closer reduces that amount. Check your platform for how to do this.
Does the rand value per point change if I trade a different currency pair?
Yes, it does. The value of one point depends on the contract size and the currencies involved. On USD/ZAR, one point on 0.10 lots is about R10. On another pair, that figure will be different. Always check the contract specifications for the pair you are trading. Your broker lists the exact value per point there.
What if my broker charges a commission or spread — does that change my stop loss amount?
Yes. The spread and any commission are costs on top of your stop loss loss. If your stop loss is 20 points away and the spread is 3 points, the market must move 23 points against you before your stop is hit. Your total cost includes the spread and commission. The rand amount you calculated for the stop loss is only part of the picture.
The words used on this page
- stop loss
- An instruction you attach to an open trade. It tells the broker to close the trade if the market moves a set distance against you. That distance fixes the most you can lose on that trade, unless the price jumps past your level.
- take profit
- An instruction you attach to an open trade. It tells the broker to close the trade if the market moves a set distance in your favour. That distance fixes the profit you aim for, unless the price jumps past your level.
- point
- A unit of price movement. On USD/ZAR, one point is the fourth decimal place. A move from 18.4100 to 18.4120 is 20 points. The rand value of a point depends on your lot size.
- lot size
- The amount of currency you are trading. A larger lot size means each point is worth more rand. On USD/ZAR, one point on 0.10 lots is about R10, and on 0.20 lots it is about R20.
- spread
- The difference between the price you can buy at and the price you can sell at. It is a cost you pay when you open a trade. A wider spread means you need a bigger price move to reach your take profit or stop loss.
- slippage
- The difference between the price you expected and the price you actually get when your order is filled. It often happens when the market moves fast. Your stop loss or take profit can be filled at a worse price than you set.
What to take away
- A stop loss and a take profit fix the rand amount you are willing to lose or aim to make, before you click.
- That rand amount comes from points times lot size times the rand value per point, not from the point distance alone.
- Your broker may round the point value, charge a spread or commission, and fill at a slightly different price, so treat the figure as close, not exact.
- Check your broker's contract specifications for the precise rand value per point on USD/ZAR, and never risk more than you can afford to lose.