Stop loss and take profit

A stop loss is an instruction you give when you open a trade. It tells the platform to close the position if the market moves against you by a set number of pips. A take profit does the same in the opposite direction, closing the trade once you have a profit you chose. Both are part of the order, not something you add later.

Without a stop loss, a losing trade has no natural end. You watch the loss grow and hope for a reversal. That hope is not a plan. With a stop loss, the worst case is known before you click buy or sell. The market may still reach that level, but the size of the loss is fixed.

Consider two cases on a 0.10 lot EUR/USD trade. Case one: you set a 30 pip stop and a 60 pip take profit. If the stop is hit, you lose about KSh 3,900. If the target is hit, you gain about KSh 7,800. Case two: you set no stop and no target. The trade stays open until you close it. The loss could be larger than KSh 3,900, and the profit could be smaller than KSh 7,800. The difference is not luck; it is the instructions you attached.

The distance from the current price to your stop or target is measured in pips. For EUR/USD, one pip is 0.0001. If the price is 1.0850 and you set a stop at 1.0820, the distance is 30 pips. A take profit at 1.0910 is 60 pips away. The platform shows these levels, but you can work them out yourself.

To find the money at risk, multiply the pip distance by the pip value. On a 0.10 lot EUR/USD trade, one pip is worth about KSh 130. So a 30 pip stop equals 30 times KSh 130, which is KSh 3,900. A 60 pip target equals 60 times KSh 130, which is KSh 7,800. These figures are approximate because the broker may round the pip value and the USD to KES rate can change.

The ratio of possible profit to possible loss is the target distance divided by the stop distance. Here, 60 pips divided by 30 pips gives 2 to 1. In money terms, KSh 7,800 divided by KSh 3,900 also gives 2 to 1. This ratio helps you compare setups. A ratio below 1 to 1 means the potential profit is smaller than the potential loss. That does not make the trade wrong, but you should know the numbers before you open it.

When you place a trade, the order ticket has fields for stop loss and take profit. You can enter the price levels or the distance in pips. Set both before you confirm. If you leave them blank, the trade opens without them. You can add them later, but the market may move while you wait. Adding them at the start keeps the decision separate from the emotion of a live trade.

Some platforms let you set a trailing stop, which moves the stop as the price moves in your favour. That can lock in profit, but it also changes the original plan. For a beginner, a fixed stop and a fixed target are simpler. You know the exact loss and the exact profit before you begin. If you later move the stop further away, you turn a planned loss into an unplanned one. The page already warns against that.

After the trade closes, the result is recorded. If the stop was hit, you lost the amount you calculated. If the target was hit, you gained the amount you calculated. The broker may charge a spread or commission on top, so the final figures can differ. In Kenya, payments to and from the account are often made by M-Pesa or bank transfer. The broker must be licensed by the CMA. Check that before you deposit.