When someone is willing to trade in the Forex market, then he or she must know how to trade effectively. Online tutorials, seminars and a bit of discussion with experts will solve problems related to trade. In fact, the number of traders who incur losses is more than the traders who gain. Where are you standing? Traders can use Forex stop loss to remove the dilemma of maximum losses.
What is Forex stop loss?
To remain protected from the arousal of potential losses, one can use different trading strategies. It can be done by using stop loss or limit order to manage the positions. These two strategies are used in different ways for separate reasons.
It specifies the value at which a trader should buy or sell after reaching the maximum or minimum price respectively.
It specifies a particular value for which one would like to close his or her position of buy or sell.
How to use Forex stop lost and limit order?
It is important to understand the market flow to manage your trading position. But, sometimes market fluctuates suddenly due to the involvement of a lot of traders at the same time. This is then unpredictable where the market will move. To use these strategies is not difficult. Furthermore, traders can use both these order for both selling and buying of currency to minimize the risk factor.
With a long position, one can set limit order that will be above the current market price to take profit. A stop order should be set below its current market price to create a protection if the market suddenly fluctuates.
With a short position, one can set limit order that will be below current market price to initiate the target. A stop order should be set above its current market price to manage the market risks. In fact, there are no such rules at what price you should put stop loss or limit order. It will be a personal decision by checking the market thoroughly.
Difference between Forex stop loss and limit order:
When you place stop loss and limit order, it will predict the level of someone’s profit and loss statistics. A limit order will set the maximum and minimum value of buy and sell.
For example, if you trade at $15 and set a limit order to buy at $12, then you prefer to buy at this price. When you choose to sell at $20 and set a limit order at $25, then it will sell automatically at this price.
A stop loss means traders are willing to stop his or her process of trading after reaching the point (stop price). Once your currency’s value reaches that level, the stop loss will become a market order. This protects against substantial losses.
For example, if you trade at $25 and put the Forex stop loss at $20, then it allows limiting your losses till it reaches $20 to close your deal and saves your potential investment.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.