What is stop loss?

What is stop loss?

There are many tools and strategies available to use while in the trading business to avoid losing all your capital. The key to being a successful trader is to protect their investments while making profits. It is extremely crucial to learn how to manage your available account balance in a dynamic market.

Forex brokers provide options to traders which they can use while placing orders for buying or selling in the market. One of those functions includes the ability to place a stop-loss order. It is an effective forex trading strategy that lowers the risk of potentially losing a large amount of your capital in an unpredictable environment.

When a person uses a stop-loss order tool in forex trading what they are actually doing is telling their broker to automatically sell or buy their currency when the market price reaches a specific threshold set by them. In order to place a stop-loss order what you need to do is to place a stop-loss order a little below or above your entry point for buying or selling price. This way you bound yourself to not lose everything in one go.

This management tool has many benefits such as it does not need the trader to continuously watch the market and can be modified at any time which gives them room to relax and breathe. Moreover, it provides relief to the trader from the stress and anxiety they might face while trading and lowers the risk of rash decisions. Stop-loss works for both short-term and long-term trading making it very beneficial for all types of traders.

Furthermore, it has its own types to choose from depending on personal preferences and availability by the broker but the most common type is called “trailing stop” which as the name suggest trails aftermarket price by a fixed amount for example if the market prices rise from your entry price it will trail upwards making sure not only your loss is limited but your profits gained in that time are also protected.

It is inevitable to avoid losses while trading, but it is possible to limit your losses. Stop-loss allows traders to place a predetermined price range to which price they can afford to lose so that if the trade goes against your expectations you can come out of the situation with facing minimum loss. Please also check out the secrets of currency pairs!

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