What is a Stop Loss Order?
The Stop Loss is the order in which the amount of the loss that the trader may take on trade while exiting the order. Basically stop loss order is used to limit an investor’s loss on a derivative that makes an unfavorable move. This is used to limit your risk on a trade, with an exit plan. If you set stop loss then you don’t need to monitor your holding daily.
To give an example Lets buy EUR/USD at 1.17551 here we set Stop Loss at price 1.17131. Now our order will execute when the price reaches 1.17131, thereby it will prevent further loss. If the price never goes below to 1.17131 then stop loss order will never execute.
How to Place a Loss Order
- Market Order
Stop loss is usually known as the Market orders in which the price is available for the bid, ask, and the last price. In case if no one is willing to take the derivative at price 1.17131, then you could end with worse price than ever. This is called slippage however this is not an issue that occurs usually.
- Limit Order
The other type of the stop-loss order is the stop-loss limit order. It is defined as the price in which the asset reaches the stop loss price; the limit order will be set by the broker to close the trade position at the stop-loss price. In this order type stop loss order type will either close at stop loss price or a better price than this. In this way you get rid of slippage but doesn’t get you out of the market when price moving aggressively against you.
- Trailing Stop Loss
The Trailing Stop will be adjusted to the trade’s moves into the trader’s favor in order to reduce the risk of the negative trade. Trailing stop loss is a type of trading that lets you set maximum value or percentage of amount occurs on a trade. It works only in case if prices fall or rise against you. This order limits the losses but doesn’t limit if your position is in gain.