How do stop loss and take-profit orders work?

stop loss orders are used to exit a trade automatically in the event of opposite market movement for some traders, these are critical to an effective risk management strategy how does a stop loss order work? suppose a trader has a bought in at $1,000 per share, with a stop loss order at $950 if the market were to move down, the loss would be limited to $50 a share, thereby protecting the rest of their capital this same logic is also applicable for profit taking take profit orders are used to exit your position when the market reaches a defined profit target how does a take profit order work? let's use our trader from before who got in at $1,000 a share setting a take profit at $1,250 means they will automatically sell their shares once the market reaches this level, rather than manually deciding when to sell relying on manual intervention risks letting the market change directions, leading to less profits, or a loss see our article on risk management https //tuned zendesk com/hc/en us/articles/4404294814738 for more detail on why a plan is so important