Stop loss and take profit

When you buy EUR/USD, your position opens at the ask price, which is the higher of the two prices on the screen. When you sell, it opens at the bid, the lower one. The gap between them is the spread, and it is already a cost you have paid the moment the trade exists. On EUR/USD at about 1.0850, that gap is usually a fraction of a pip, but it is never zero.

A stop loss is a price you choose in advance at which the broker closes the position to limit the loss. A take profit is a price you choose in advance at which the broker closes it to lock in a gain. Neither is a promise about what the market will do. They are instructions that sit with the position and wait.

For a buy, the stop loss sits below the entry price and the take profit above it. For a sell, the order reverses: the stop sits above, the take profit below. If you place them on the wrong side, the broker will reject the order or close the trade immediately. Check the direction before you confirm, because a stop on the wrong side is not protection at all.

A pip on EUR/USD is the fourth decimal place, so a move from 1.0850 to 1.0851 is one pip. The money value of that pip depends on your lot size and on the naira exchange rate your broker applies. On a 0.10 lot, one pip is roughly ₦1,085 at the rates used in this course. That single number is the bridge between the chart and your account.

To find the risk on any stop, multiply the pip distance by the pip value. A 25-pip stop on 0.10 lot is 25 times ₦1,085, which is about ₦27,125. A 60-pip take profit on the same lot is 60 times ₦1,085, which is about ₦65,100. The arithmetic is the same whether the market is calm or moving fast.

The reward-to-risk ratio compares the two figures. A 20-pip stop against a 40-pip take profit risks ₦21,700 to aim for ₦43,400, a ratio of one to two. That ratio does not tell you whether the trade will work. It tells you what the trade is worth if it does, and what it costs if it does not. A ratio below one to one means you need to be right more often than you are wrong just to break even.

The pip value you calculate is a guide, not a contract. Your broker may round it, apply a slightly different naira rate at the moment the trade closes, and charge a spread or commission on top. Those charges vary between brokers, so the final amount in your account can differ from the figure you wrote down. Ask your broker how they convert and when.

Slippage is the difference between the price your stop was set at and the price it actually fills at. In fast markets, or around major news, the fill can be worse than the stop level. That means a 20-pip stop can cost more than ₦21,700. This is not the broker cheating; it is the market moving between the moment the order triggers and the moment it is filled.

Regulation matters here. In Nigeria, firms offering these products to retail clients come under the SEC Nigeria. Rules on leverage, on how client money is held, and on what a firm must disclose vary by jurisdiction and by firm. Check what applies to the specific broker you use, because the protections are not identical everywhere.

Payment methods also carry their own cost. Bank transfer, USSD and cards may each attract a fee, and the rate at which naira becomes the currency of your account is set by the provider, not by you. Those costs sit outside the trade but inside your result. Add them to the naira figure you are risking, or the plan is incomplete.

If you open the trade first and think about the stop later, the market has already moved while you decide. The price you wanted may be gone, and the loss you are now accepting is larger than the one you planned. The stop is not a detail added afterwards; it is part of the reason the trade is the right size.

Moving a stop further away when price approaches it does not remove the loss. It converts a known loss into an unknown one. A 20-pip stop of about ₦21,700 becomes a 50-pip loss of about ₦54,250, which is ₦32,550 more than the plan. The position stays open, and the market keeps moving while it does.

The alternative is to reduce the position size rather than widen the stop. If ₦21,700 is more than you are willing to lose on one trade, a smaller lot brings the naira risk down while keeping the stop where the chart says it belongs. Write the naira amount down before you click buy or sell. If you cannot state it in one line, the trade is not ready.

Suppose you buy 0.10 lot of EUR/USD at about 1.0850. You set a stop 20 pips below at about 1.0830 and a take profit 40 pips above at about 1.0890. At ₦1,085 per pip, the stop risks about ₦21,700 and the target aims for about ₦43,400. Both figures are known before the trade opens.

If price falls to 1.0830, the stop triggers and the position closes at a loss of roughly ₦21,700, before spread and any commission. If price rises to 1.0890, the take profit triggers and the position closes at a gain of roughly ₦43,400, again before costs. In both cases the decision was made in advance.

The broker may fill the stop slightly below 1.0830 in a fast market, so the loss can be a little larger. The take profit may fill slightly above or below its level for the same reason. The naira figures are close estimates, not exact outcomes. What is exact is that the trade had a defined end before it began.

The original plan risks 20 pips times ₦1,085, which is about ₦21,700. Moving the stop to 50 pips keeps the lot size the same but changes the distance. The new risk is 50 times ₦1,085, which is about ₦54,250. The difference is ₦32,550 of extra risk that was not in the plan.

That extra amount is not a market event you could not control. It is a decision made while the trade was open, usually because the price was close to the stop. The position stays open, and the market continues to move while it does. The loss grows with every pip against you.

The same logic applies in reverse to the take profit. Moving it further away to chase a bigger gain changes the ratio you accepted when you entered. The trade you planned is not the trade you are now holding. If the reason for the original levels has gone, closing the position is a complete decision, not a failure.

Confirm the direction of both orders: stop below entry for a buy, above for a sell, and the take profit on the opposite side. Confirm the pip distance and multiply it by the pip value for your lot size. Confirm the naira figure is one you are willing to lose on a single trade.

Check what your broker adds: spread, commission, conversion rate and any payment fee. These vary between brokers, so the final amount can differ from your calculation. Note that slippage can make a stop fill worse than its level in fast markets.

Check the regulatory position of the firm you use and what it discloses about client money and leverage. In Nigeria, retail firms come under SEC Nigeria, but the specific rules and protections differ by firm and jurisdiction. If any of these answers is unclear, the trade is not ready to open.