Traders use stop-loss orders to either reduce risk or safeguard a portion of their current earnings in a trading position. Every time a trade is made, a trading platform often gives the option of placing a stop-loss order, which can be changed at any moment. Once a price threshold is reached, a stop-loss order essentially turns on a market order. Stop-loss orders are initially intended to cap potential losses from the trade. For instance, a trader in foreign exchange would issue an order to buy EUR/USD at 1.1500 and a stop-loss order at 1.1485. As a result, the trader's potential loss is capped to 15 pip.
Stop loss should be under the market level if you're opening a long position.
Stop loss should be over the market level if you're opening a short position.
- While opening a position on the 'order entry' screen, you will find 'stop loss order'.
- By clicking on an existing position you can set a stop-level amount.
- If the market price comes up to a stop-loss level, positions are closed automatically to limit potential losses.