In MetaTrader 4 it is possible to define orders that close a transaction automatically when a specified positive or negative market scenario is fulfilled

Some investors claim that it does not matter much when and how a position on a market is opened. It is all about the time and manner in which it is closed. As this statement can be a bit provocative, it is safe to claim that whenever the trader opens a new transaction, he/she should have at least a rough idea how it may end. Operating on financial markets is always associated with taking significant financial risks, especially using leveraged instruments such as CFDs. Those risks however could and should be managed.

The simplest tools designated to limit the potential losses and/or close a position at a predefined level are:

• Stop loss order – automatically closes an open position once the market price reaches a predefined level. The Stop Loss order can be thought of as a negative scenario, as the price level in question is less favourable for the investor than the current market price. In short , it protects the position from incurring unpredictable losses.
• Take Profit order – works in a similar way, and can be thought of as a positive scenario price level. It can also be set at a more favourable price than the current market price. In short, it secures the profit (or lower loss), if only the market conditions allow that.

How do the stop loss and Take Profit orders work in practice? Let us assume that you have just opened a position on a chosen market. What are the problems you are facing?

• Why set a stop loss order? - reasoning behind the stop loss order and potential problems related with too tight or too distant stop loss orders.
• How to set the stop loss order? - more technical description of the simple procedure of setting the order.
• Why to specify the Take Profit order? - explanation of the tactics involving the Take Profit orders.
• How to set the Take Profit order? - practical steps needed to define, modify or delete Take Profit orders.

It is important to understand that in certain market conditions, even the stop loss orders offer a limited scope of protection, as it is a case of an execution of the order at the time of the opening of a given market. If the market opens with a price that is less favourable for the trader than the stop loss level set, the order will be executed at the market price level, as the price requested is not available. This is a standard procedure for the financial markets.