# How to take profit and limit loss?

For obvious reasons, we can not permanently monitor movement of exchange rates. In order to control positions, we use special tools – orders. Order is a clearly formulated instruction to broker to conduct certain transactions in a specified amount with a particular currency pair, once price reaches a specified number of points. It is very convenient, because we can use order for entering (open position) and leaving (closing position) the market .

### There are two types of orders we use to exit the market (close position):

• Stop Loss ( S-L) – this order is used to minimize losses, if currency price begins to move in an unprofitable direction. If the exchange rate reaches critical value (shown on the chart), a position will be closed automatically;
• Take Profit (T-P) – is the limit applied to gain profit, once currency price reaches or increases for a certain level (shown on the chart). This also leads to closing of a position.

Here is an example. Suppose that we purchased \$10,000 for CHF (Swiss francs) at the rate 1.2049. At the same time, we do not want losses to go above \$20. In case our assumption is correct, we want gain profit at least in the amount of \$60. For this purpose, in MetaTrader we use Stop Loss and Take Profit. In the previous section we found out how to calculate the cost of 1 point.

Currency pair: USD/CHF; lot: 10 000; current exchange rate of USD/CHF = 1.2049
Cost of point = (10 000*0.0001) / 1.2049 = 0.82\$.

Calculation of Stop Loss level: 20 / 0.82 = 24 points =>
Stop-Loss=1.2049 – 0.0024=1.2025.

Calculation of Take Profit level: 60 / 0.82 = 73 points =>
Take-Profit=1.2049 + 0.0073=1.2122.

For currency pairs where U.S. dollar is the quoted currency(EUR/USD, GBP/USD, NZD/USD, AUD/USD), all calculations should be made in USD, so the cost of point does not depend on size of lot and is always equal to 1\$. Example:

Currency pair: GBP/USD; lot: 10 000; USD/USD = 1;
cost of point = (10 000*0.0001) / 1 = 1 \$.

While calculating cost of point for cross-rates, it is required to refer to the exchange rate to USD rather than to base currency. Upon that, for cross-rates with GBP or EUR as the quoted currency, rate of quoted currency to USD is the direct rate of USD/GBP and USD/EUR. In this regard, USD/GBP = 1/(GBP/USD rate).

Currency pair: EUR/JPY; lot: 100 000; USD/JPY rate = 132.58;
cost of point = (100 000 *0.01) / 132.58 = 7.54\$.

Currency pair: EUR/GBP; lot: 20 000; GBP/USD rate = 1.4228; USD/GBP rate = 1 / (GBP/USD rate) = 1 / 1.4228 = 0.7028;
cost of point = (20 000 *0.0001) / 0.7028 = 2.85\$.

## Conclusion: with the help of Stop Loss and Take Profit a trader always can gain profit or set the volume of possible loss.

Order discussed above are of immediate execution. If we do not want to wait until price reaches a certain point, but want to open transaction automatically, we will place pending orders.

Pending orders

There are four types of pending orders: Buy Stop, Buy Limit, Sell Stop, Sell Limit.

Let's look at them one by one.

If we buy, we use Buy order, if we sell – Sell order.

It is getting even easier further. We expect growth of exchange rate, but we do not want to wait until price reaches a specified point. In this case we place Buy Stop order, and our position will be opened automatically when price reaches a specified point. We also expect growth in exchange rate, but in this case, we assume that price will go to the opposite direction first. We place Buy Limit order. As soon as price turns to the needed direction, position will be opened and we will earn more than if we've been waited till price came in previous reference point.

The same point with Sell orders.

### Sell Stop order. ### Sell Limit order In this case, we expect drop of rate, but as soon as it grows. In order not to wait until it happens, we put Sell Limit order. When price turns around and starts moving in direction that needed, a short position will be opened.

## Conclusion: now we know how pending orders can save your time in trading. If we want to leave the position opened for a day or more, we need to get familiar with the term "swap". Let's see what it means.

Swap – is a transfer of open position to the next day ( or the change of valuation date of an open position), so that traders could avoide the real supply of foreign currency to buyer or seller. The transfer occurs at 00:00 as per broker's server time. As we already know, currency pair consists of two currencies (the two countries with different interest rates) and some of them will have a better investment attraction than the other (if its rate is higher). For this transfer, broker credits either debits a specific amount to an open position. If a trader buys currency at a rate higher than that for which he buys it, then swap will be positive and vice versa.

For example, if a trader bought EUR/USD: rate of the ECB (European Central Bank) is 3.5%; interest rate of the Fed (Federal Reserve) is 5.25%.

Since a trader bought currency which rate is less than the other currency in the pair, swap will be negative. An accurate swap value is defined by a broker. In this case, 0.67 points will be debited from the result of an open position for each day of the transfer.

### So, have you figured it out? Well, let's go further.

Swap for each currency pair can be found in the MetaTrader 4 terminal by opening "View - Market Watch - Symbols - Properties" (transfer fee for both long and short positions is shown in the table named "Specification of the contract").    