---
title: How do stop loss and take-profit orders work?
slug: how-do-stop-loss-and-take-profit-orders-work
docTags: 
createdAt: 2022-06-23T19:44:57.000Z
---

**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.