How To Set a Stop Loss Order in Forex Trading
A stop loss order is used to prevent extensive losses, especially during severe market dip situations. By placing a stop loss order, you can automatically close your position if the market moves against you. It frees you up from monitoring your portfolio constantly. In volatile markets, uncontrollable losses that could wipe out your entire account can be prevented with the use of a stop loss order.
What is a stop loss order?
A stop loss order is an advance order that signals the trade execution as soon as it reaches a certain price point. You can use stop loss in Forex trading if you fear that the currency pair price will move against you. Stop loss orders execute the trade at the lowest possible price when buying the currency pair and at the highest possible price when selling it.
For example, if you go long on EUR/USD and set the stop loss order at 10% below the price at 1.8, your losses will be limited to 10%. This means that if EUR/USD falls below 1.8, your trade will be executed, and the currency pair will be sold at 1.8. However, if the market moves in your favour and the currency pair price movies to 2.2, the trade will not be executed.
Another type of stop loss order is a limit order which you can use to specify the maximum and minimum price at which you want to sell or buy a currency pair. As soon as the currency pair price reaches the mentioned price point, the limit order is triggered to end the position at the same price or a better one. Limit orders are only closed if and when the currency pair prices reach the stop loss limit or a price better than the stop loss limit.
Benefits of stop loss orders
Eliminates human emotion
Forex trading can be exhausting and emotionally draining. Depending on market conditions, a trader can feel overconfident or apprehensive. Emotions can interfere in making trade decisions. A stop loss order protects you against urges to exit too soon or hold onto a position for too long. Since the limit is already set, your emotions do not influence trade decisions triggered by impulsiveness.
Mitigates risk and protects profits
The primary function of setting stop loss orders is to limit risks and protect profits. It helps you manage money in your trading account as it allows you to only exit the trade when the limit is reached.
Minimal supervision of trades
When you place a stop loss order, you enable the system to execute orders automatically. As there is a cap to potential losses with some locked-in gains, you can take a break from the intense Forex trading environment and come back refreshed to make more ideal trades.
How to place a stop loss order
When you are buying a currency pair, consider placing the stop loss at a level that gets you out of the position if the Forex market turns against you. Place the stop loss order below a swing slow, the point where the prices fall and immediately bounce back. This is also called a support level. It is ideal for you to trade at this level to minimise losses. The swing lows should be moving in the upward direction as you buy the currency pair.
When you sell a currency pair in the market, the ideal placement for a stop loss order is above the swing high. A swing high occurs when the rising prices stop rising and immediately fall. This point is also known as the resistance level. The swing highs should be moving in the downward direction when you go short.
You do not always have to place your stop loss orders below the low swing or above the high swing. Depending on your entry and exit strategy, you can also place your stop loss orders at an alternative price. For example, when the market is volatile, you can use the Average True Range indicator to see how much the market prices are changing in a day. You can then set up a stop loss order based on the volatility and place the order at a price outside of the fluctuations.
Limit your losses with stop-loss orders
Stop loss orders are ideal if you want to avoid drastic price movements in the Forex market. They protect your profits and mitigate losses. At Blueberry Markets, we provide our traders tools to study market movements. Our traders then use these to fix stop-loss orders at the most relevant prices.
Sign up with Blueberry Markets today to get started.
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Understanding Forex Risk Management
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What Is PIP in forex trading?
PIPs are essential in forex as they tell the traders about the size of profits or losses that can be made from a particular currency pair.
What Is Gap Trading?
Gaps in the Forex market help traders identify price movement clues, entry and exit signals, and trend reversals.
Top Swing Trading Indicators
Swing trading is all about profiting from market swings. It is a popular speculative strategy where traders tend to buy and hold their assets hoping to profit from expected market movement.
What are Support and Resistance Levels
Support and resistance levels in the Forex market allow traders to understand the market direction and predict future prices to consider in making trade decisions.
MT4 vs MT5: Which is Better?
MetaTrader is one of the most popular online trading platforms used globally and its two main versions are MetaTrader 4 and MetaTrader 5. But between MT4 and MT5, which is one best for you?
What is Forex?
The Forex market offers high liquidity and margin opportunities for you to trade and potentially profit off of exchange rates of currencies. With a daily volume of more than $6.6 trillion in 2019, it is the largest financial market in the world.
What is Margin trading?
Margin trading is one of the most common derivative strategies used in financial markets. It can also be considered tax-efficient as it allows you to choose the size of your wager and exempts profits earned from stamp duties and taxes.
What is Leverage in Forex
Leverage allows traders to hold large positions in the Forex market with fewer capital. With leverage trading, traders can borrow money from a broker and hold larger positions, which in turn could magnify returns or losses.
MetaTrader 5: The Complete Guide
MetaTrader 5, the powerful automated trading platform, offers advanced tools for successful trading analysis and trades in the financial markets. Aside from Forex, the MT5 platform helps you trade Stocks, CFDs, and Futures.
What is MetaTrader 4: The Complete Guide to MT4
An advanced trading platform, MT4 has become a norm for seasoned Forex traders as it helps them execute their trades even when their machine is off. It comes with a user-friendly interface, numerous technical analysis tools for forecasting market patterns, real-time currency price data, and much more.
What are Long and Short Positions in Forex?
In Forex trading, you can take long or short positions based on expectations of the market rising or falling. Long or buy positions are maintained when traders expect currency pair prices to increase in the future.
What is a Spread in Forex?
A spread is a cost built into the buying and the selling price of all the currency pairs. In most cases, Forex spreads depend on your Forex broker.
What is a Currency Pair in Forex?
The foreign exchange (Forex) market is the largest financial market in the world. With a daily average volume of about $6.6 trillion and worth over $2.4 quadrillion as of 2021, Forex is a decentralised global market for trading currencies.
How do you trade forex?
Many people want to get into Forex trading and make quick profits, but only a few even know how to start. While trading Forex online has now become easier than ever because of powerful platforms like Blueberry Markets, it can still feel incredibly overwhelming to get started with it.
When Can You Trade Forex?
In case you are wondering is Forex trading profitable, the short answer is yes. But many opt for Forex traders to make fast profits since Forex markets are operational 24 hours for five days a week.
Who trades forex?
Major players in the Forex market are financial institutions including commercial banks, central banks, money managers along with hedge funds. Many global corporations also trade in Forex to hedge currency risk.
Why trade forex?
As the largest financial market globally, Forex trading is one of the most popular investment avenues for many. The liquidity and huge trading volume make Forex trading an option worth exploring.
Forex Margin & Leverage
Forex trading usually provides much higher leverage compared to other financial instruments like stocks. This is one of the primary reasons why so many people are attracted to Forex, and more and more people have started to enter the Forex trading market.
Key steps to making your first trade in Forex
Making your first trade in Forex successfully requires in-depth knowledge about trading basics and Forex trading strategies. The learning curve to trading currencies can seem overwhelming and complex, but when you have the right information by your side, it can make the entire process all the more easier.
How is Forex regulated?
There are several Forex brokers in the Forex market, and amidst those thousands of Forex brokers, it can become nothing less than challenging for traders to find the best brokers.
When you hold a currency spot position overnight, the interest you either earn or pay is the rollover amount. Each currency has a different overnight interbank interest rate, and because you trade Forex in pairs, you also deal with two different interest rates.
Tips for Forex trading beginners
In terms of trading volume, the Forex market is the largest financial market in the world. It is also the only financial market that operates round the clock every day.
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