Stop-loss and take-profit: how to place them and calculate risk

Stop-loss and take-profit in simple terms

A stop-loss is an order that will close the trade by itself if the price moves against you to a set level. A take-profit closes the trade when the price reaches your target. Both orders are placed right at entry: this way you decide where to exit while your head is cool.

Where they are placed depends on the direction of the trade. A stop-loss on a buy (you are long) is placed below the entry price, the take-profit above. In a short it is the opposite: the stop above the entry, the take below.

Example. You bought a share at 250 ₽ and set a stop at 240 ₽, a take at 270 ₽. If the price falls to 240 ₽, the broker will sell the securities and the loss will be 10 ₽ per share. If it reaches 270 ₽, you will take 20 ₽ of profit, even if you are asleep at that moment.

How a stop-loss works on an exchange: triggering and execution price

A stop has two prices, and they are often confused. The first is the trigger price: when the market touches it, the order wakes up. The second is the price at which the trade will actually close. The U.S. Securities and Exchange Commission (SEC) on its Investor.gov website states plainly: after triggering, a stop order becomes a market order, and in a fast market the execution price may differ from the stop price.

There is a second option - a stop-limit order. Once triggered, it places not a market but a limit order at your price. The trade will not be closed worse than this price, but if the market jumps past it, the position will remain open.

Slippage in trading: what it is and where it comes from

Slippage is the difference between the stop price and the price at which the trade was closed. It happens on news, at night, and during low liquidity. The most unpleasant case is a gap: the market closed at one price and opened at another, and no one traded the levels in between.

Let's take the same stock. You bought 300 shares at 250 ₽ with a stop at 240 ₽ and planned to lose no more than 3,000 ₽. Over the weekend bad news comes out, and on Monday trading opens at 228 ₽. The stop triggers, but sells at roughly 228 ₽: a loss of 22 ₽ per share, or 6,600 ₽ instead of 3,000 ₽.

In the forex market, the most famous case is 15.01.2015. That day the Swiss National Bank abandoned the minimum exchange rate of the franc against the euro. According to Finance Magnates, the franc rose almost 30% in minutes, for about 45 minutes there was almost no liquidity, and clients' stops at brokers were executed far from the stated levels.

Risk per trade: how much you can lose in a single trade

Risk per trade is the amount you will lose if the stop triggers. It is calculated as a percentage of the account. A common guideline is 1-2% of the deposit per trade, which is the basis of money management (capital management). The figure is not a law, but with 1% risk, even ten losing trades in a row will leave you with about 90% of your account.

Calculation: remaining = (1 - risk) to the 10th power, rounded to whole numbers. At 1% this is 0.99^10 = 90.4%, at 2% - 81.7%, at 5% - 59.9%.

The formula is the same for any market:

position size = risk amount / (distance to stop × value of one point)

Example with currency. Account $10,000, risk 1%, that is $100. You enter EUR/USD, stop at 25 points. One point on a standard EUR/USD lot costs $10. So the volume = 100 / (25 × 10) = 0.4 lots.

Example with stocks. Account 300,000 ₽, risk 1% is 3,000 ₽. Buying at 250 ₽, stop at 240 ₽, risk per share 10 ₽. You can buy 300 shares, and if the security trades in lots, round down to a whole lot.

Add commission and slippage on top. If the instrument has gaps, calculate the risk not from the stop level but with a buffer: in the EUR/USD example, a gap of another 15 points will turn a $100 loss into $160.

How to place a stop-loss: level first, then volume

A common mistake is to place the stop "at 1%" from the entry price because it is convenient. The market does not care how much you have in your account. The stop should be placed where your idea stops working, and you adjust the volume to that stop.

Where stops are usually placed:

• beyond the support level when buying or beyond the resistance level when selling, with a small buffer;
• beyond the last local low or high that would break the scenario;
• by volatility: at a distance of 1-2 ATR (average true range) values so that normal fluctuations do not knock the trade out;
• beyond a round number, not exactly on it: other orders pile up at round prices.

If the stop on the chart ends up far away, the volume will be small. That is normal. It is worse when the stop is moved closer for the sake of a larger volume: then ordinary noise knocks it out, and the price then moves in the right direction without you.

Other habits are just as costly: moving the stop further away when price approaches it, entering without a stop "for a minute," and holding a position over the weekend without factoring the gap into risk.

Take-profit: how to set a target and not close too early

A take-profit is placed at the next level where price may reverse: at the nearest resistance when buying, at support when selling. Then the risk-to-reward ratio is checked. If the stop is 25 points away and the take is 50, that is 1 to 2.

The ratio determines how often you can be wrong. Excluding commissions, at 1 to 1 you need to win more than half of your trades, at 1 to 2 a third is enough, at 1 to 3 a quarter.

This is the share of profitable trades at which the account breaks even: 1 / (1 + ratio). Commission and slippage push the threshold higher. A distant take looks nice, but if price almost never reaches it, the win rate will fall more than the profit will grow.

Some traders split the exit: they close half the position at the first target and move the stop on the remainder to breakeven. That way part of the profit is locked in and the trade is still alive.

Trailing stop: a stop that follows price

A trailing stop automatically tightens behind price when it moves in your favor and stays put when price pulls back. This way it protects profit already gained.

An example from Bybit's help center. A trader bought a BTCUSD contract at $30,000 and set a trailing stop with a $1,000 retracement. If price did not rise, the stop would trigger at $29,000, like a regular one. Price reached $31,000 - the stop rose to $30,000. Price pulled back to $30,500 - the stop stayed at $30,000.

Trailing works well in a strong move and gets in the way in a range: there a normal pullback knocks it out. The retracement is better set based on the instrument's volatility rather than a round number.

Stop-loss on futures and on a crypto exchange

A stop-loss on futures works the same way, but on a crypto exchange it matters which price triggers it. On Bybit, for futures you can choose the last traded price, the index price, or the mark price, and after triggering, TP/SL is executed as a market order. If you set the trigger from the last price, the stop may be hit by a sharp wick from a single trade.

With leverage, the stop must be placed closer to the entry price than the liquidation price. Otherwise the exchange will close the position before the stop, and you will lose all the margin on the trade. Trading with leverage can lead to the loss of all the money invested.

Stop-loss on a prop account: rules stricter than your stop

In prop trading (trading a prop firm's account after a paid evaluation), the stop is not just your habit. Almost every program has a daily loss limit: break it once and the challenge is failed. The PMC catalog lists 130 challenges from 7 prop firms. 60 of them have a 3% daily limit, 35 have 5%, and the strictest have 2% (catalog snapshot 10/22/2026).

On a $10,000 account with a 3% daily limit, that is $300 per day. With 1% risk per trade, the limit will be used up after three losing trades in a row, and with a gap through the stop, even sooner. That is why risk per trade for a prop account is calculated from the daily limit, not from the usual 2%.

Era Trade has another rule related to stops: forex, metals, indices and commodities cannot be held over the weekend. This is how the prop firm removes the risk of a Monday gap. The conditions of each program are collected on the prop firm cards, for example The Funded Way, Era Trade and SpiceProp.

If you already trade with a stop and calculate risk from the amount, a prop account lets you trade without your own large deposit. You risk the fee for the attempt, not the whole account. Loss limits differ between prop firms, so read them first: the PMC Academy has a free lesson on how to read challenge rules. You can find a program with a suitable daily limit in the challenge calculator or compare them in the challenge catalog.

Summary

The stop is placed where the idea is broken, and the volume is calculated so that triggering costs 1-2% of the account. The take is placed at the next level with a profit at least twice the risk. The stop limits the loss but does not guarantee the price: a gap and news will push it further. If you are thinking about a prop account, start with the free PMC Academy lesson on challenge rules, and you will find the other lessons in the PMC Academy.