Take profit stop loss
Family II · Orders
Not to be confused with stop limit order, stop order, trailing stop.
Take profit stop loss refers to two separate exit orders placed on one open position: a take profit order that closes the trade once a specified profit level is reached, and a stop loss order that closes it if the market moves to a specified loss level. The two orders bracket the position, so only one can execute unless the position is partially closed. Both are resting orders held by the broker or exchange until triggered, cancelled, or the position is closed by other means.
How the two orders work together
A take profit order is placed on the opposite side of the market from the entry: a long position uses a sell take profit above the entry price, and a short position uses a buy take profit below it. A stop loss order is also placed on the opposite side, but on the losing side of the entry: below the entry for a long, above it for a short.
When either order is triggered, the position is closed and the remaining order is normally cancelled by the broker, though the exact handling of the paired order varies by venue and order type. The distance between entry and each exit level determines the reward-to-risk ratio of the trade.
Worked example
Practical points
- Both orders are usually placed at the same time as the entry, but can be added or amended afterwards.
- Gaps and fast markets can cause the stop loss to fill at a worse price than its stop level, so the realised loss may exceed the planned amount.
- The take profit order is typically a limit order, so it fills at the target price or better; the stop loss is typically a market or stop order once triggered.
- Some brokers require the take profit and stop loss to be attached as a bracket order, while others accept them as independent orders.
- Regulatory treatment of guaranteed stops and negative balance protection varies by jurisdiction and broker.
Often confused with
- stop limit order
- A stop limit order becomes a limit order once its stop price is reached and may not fill if price moves past the limit, whereas a take profit stop loss uses a take profit limit order for the profit side and a stop loss order for the loss side; the visible sign is that a stop limit order has both a stop price and a limit price on the same order ticket.
- stop order
- A stop order is a single order that triggers a market or limit instruction when a stop price is touched, while a take profit stop loss is a pair of orders bracketing a position; the visible sign is that a stop order appears alone with one stop price, not as two linked exit levels.
- trailing stop
- A trailing stop follows the market by a set distance and moves only in the favourable direction, whereas the stop loss component of a take profit stop loss is fixed at a set price; the visible sign is that a trailing stop shows a moving stop price rather than a static level.