Parameters of a trade

          Each time a trader executes a position in the market, he will have to think about 3 important parameters that specify the entry price, risk, and potential profit from this transaction. The first one is the entry. This parameter refers to the exact price a trader enters the market at, whether it is a buy or sell position. Professional traders regularly pinpoint an exact price or price area, at which they are willing to buy or sell a financial instrument, after thoroughly analyzing an asset. 

            With each trade a speculator takes in the market, there is an endless potential to profit or lose, unless future price fluctuations are limited by specific boundaries. A stoploss is used as a safety net for traders, in the scenario in which their speculation doesn’t turn out as planned. Let’s assume that we are buying GBPAUD at an entry price of 1.8050. Before pulling the trigger, we must have conducted some sort of analysis, otherwise we would be gambling with our capital. We create a bias from our analysis, which supports the idea that GBPAUD will trade above 1.8050 and we will in turn make a profit. It is vital that our analysis includes an ‘escape plan’ in the form of a stoploss price. The stoploss is placed below our entry price in this scenario, because we are buying, and it protects us if GBPAUD moves against us. If the stoploss is placed at 1.8040, we say that our stoploss is 10 pips. If price does not move in our anticipated direction, but instead declines, we are protected from any bearish movement below 1.8040, because as soon as price strikes our stoploss, the position is immediately closed. To put it simply, the stoploss must be placed on a price at which the trader finds his previous analysis obsolete, and does not believe in his former bias anymore.          

            Similarly, the takeprofit, also related to as the target,is used to determine our exit price in the scenario that our analysis was correct and the price progressed in the anticipated direction. The concept of limiting your profit sounds slightly counterintuitive to a beginner, but the reason most traders use a takeprofit is because the market can turn at any time, and there is never 100% certainty regarding the future price movements of a CFD. Relating to the hypothetical example used above, GBPAUD could be floating at 1.8150 a few hours after we bought it at 1.8050, implying that we are 100 pips in profit. However, this profit is unrealized, unless the position is closed, because the market can plummet at any time and burn through our floating profit . If we had placed a takeprofit at 1.8150, the position would be automatically closed as soon as price hit this predetermined level, and the profit amount would be added to our account balance. Both the stoploss and takeprofit are very useful, helping traders pre-arrange their risk and potential profits, and remaining calm even when unable to monitor live price movements on a chart. 

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