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A stop-loss order is an order type where your broker will automatically close a position when price reaches a predetermined level.

A stop-loss order is an order type designed to control your risk as a trader.

For example, if you open long position and the price falls, you can set a predetermined stop-loss order in which your broker will automatically close your position once this lower price has been reached, limiting your losses.  

The stop-loss order saves you from having to watch the markets non-stop, 24 hours a day, guaranteeing the limitation of loss on a specific trade. 

Stop-loss orders can be attached and edited whilst an order is still open, or you can attach a stop-loss order before you open a position (recommended).

Let’s take a look at an example of where you would set a stop-loss order on a new position.

 

EXAMPLE 1

Setting a stop-loss order (long position)

You want to open a long position at the current price, with your maximum risk being a loss of $250.

Below are the rest of details of the trade you plan on opening:

 

Currency PairEUR:USD
Volume5 mini lots
PIP Value$5 per PIP
Current Price1.13011
Long or Short position?Long position

 

To work out where you should place your stop-loss order, you must first divide the maximum risk ($250) by the PIP value ($5 per PIP) = 50 PIPs

So, you must place your stop-loss order at 50 PIPs below the current price:

1.13011 – 50 (PIPs) = 1.12961

 

As you are opening a long position, the stop-loss order is placed BELOW the current price.

 

EXAMPLE 2

Setting a stop-loss order (short position)

You want to open a short position at the current price, with your maximum risk being a loss of £500.

Below are the rest of details of the trade you plan on opening:

 

Currency PairEUR:GBP
Volume1 standard lot
PIP Value£10 per PIP
Current Price0.86157
Long or Short position?Short position

 

To work out where you should place your stop-loss order, first you must divide your maximum risk (£500) by the PIP value (£10 per PIP) = 50 PIPs

So, you must place your stop-loss order at 50 PIPs above the current price:


0.86157 + 50 (PIPs) = 0.86657

 

As you are opening a short position, the stop-loss order is placed ABOVE the current price.

 

How to set a stop-loss order for a NEW position

 

Step 1:

Firstly, you must create an order by left clicking ‘New Order‘.

Your screen should look like below

Step 2:

Manually fill in the desired stop-loss order price.


For example, we want our stop-loss at ‘108.490’.

So, we enter this price into the ‘Stop Loss‘ field, then click the ‘Sell by Market‘ button.

 

You can tell that we want to open a short position as we placed our stop-loss order above the current price.

You can see the active stop-loss circled below.

How to set a stop-loss order for an ACTIVE position

 

Step 1:

Have a look at your active trades at the bottom of your screen.

Step 2:

Right-click on the trade that you would like to add (or edit) a stop-loss order to.

A pop-up menu will open, then left-click on ‘Modify or Delete‘.

Step 3:

Manually enter the price of the stop-loss order that you wish to add.
For example, here we have added ‘108.370’

Once you have filled in your desired stop-loss, click ‘Modify’ at the bottom.

Once you have modified your order, you can see your active trade with it’s newly added stop-loss at the bottom of your screen.

Stop Loss Modified

BONUS:

You can always adjust your stop-loss by dragging the red line on the chart.

For example, on the screenshot below we are changing our stop-loss from ‘108.370’ to ‘108.470’ by dragging the red line upwards.

LESSON SUMMARY:

– A stop-loss order order is an order type where your broker will automatically close a position when price reaches a predetermined level.

– A stop-loss order is an order type designed to control your risk as a trader.

Lesson tags: free forex course
Back to: Free Forex Course > Step 3 - Using Different Order Types
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