What Is a Stop Loss Order and Its Purpose?
2023-06-05
Summary:
Learn how a stop loss order can safeguard your investments by automatically selling a security at a predetermined price to limit losses while trading.
What Is Stop Loss?
A stop loss order is a predefined order to buy or sell a security at a specified price. Traders utilize stop loss orders to automatically close positions when prices reach or surpass a predetermined level. This strategy helps investors mitigate potential losses by swiftly exiting trades if market movements go against their expectations.
For instance, if investors intend to go long on EUR/USD at 1.2230, they may use a stop loss order at 1.2200 to minimize potential losses. This order ensures that if the market moves against their position and EUR/USD drops below 1.2200, the trading platform will automatically sell their position at 1.2200, limiting their loss to 30 pips.
Traders can set stop loss orders while opening their positions. The stop loss order will remain valid until the position is closed or the stop loss order is cancelled.
The Role of Stop Loss Orders
1) A method of placing orders to help maintain profits and limit losses for stock and option holdings. Enter a fixed stop loss price for these order types. Once the stop loss price is triggered, it will be sent to the market as a market order.
2) When the price fluctuates in the opposite direction as expected, it is a protective order set up for closing positions.
【 EBC Platform Risk Reminder and Disclaimer 】: There are risks in the market, and investment needs to be cautious. This article does not constitute investment advice.
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