Stop-Loss Orders: An Insurance For Forex Traders That Money Can’t Buy

What is the biggest worry of almost every trader, regardless of his experience or achievements? No doubt, it is the risk of losing a heavy sum of money or even all the money. It is no secret that Forex trading is a somewhat risky earning method.

Q3 2021 hedge fund letters, conferences and more

In practice, this fear of tough losses is the key reason why many people hesitate whether they should try such trading at all.

But what if we tell you that there is a method to prevent (or at least minimize) losses? Have you heard of stop-loss orders? Read on to learn more about them.

The Basic Facts You Should Know About Stop-Loss Orders

A stop-loss order is an order, which is set to be sold or bought automatically when the price of a particular asset reaches the limit specified. As a result, traders can use this instrument to protect their funds from unexpected and significant price fluctuations.

In concept, this tool was developed and introduced to help traders avoid tough losses. Many participants of the Forex market treat it as a kind of insurance. It provides traders with a feeling of safety and reduces nervous tension.

Besides, many experts claim it is a great preventive measure for those who tend to make decisions based on emotions. It is hard for many beginners (and advanced traders) to stick to the strategy chosen and resolve upon selling assets at due time. Instead, they may postpone that hoping that the price will go upward and lose money in the end. In such cases, transactions, which are performed automatically, are the easiest solution.

Also, it is a valuable solution for those who do not have much time to constantly monitor prices, statistics, and forecasts or those who plan to go away for a vacation and want their money safeguarded.

Stop Loss: The Possible Strategies

A well thought-out stop loss and take profit strategy helps the trader to control profits and losses. One of the positive effects of order additions is to keep emotional factors out of trading as much as possible. Subliminally, emotions such as greed and fear influence trading behavior and especially the willingness to take risks. If a trader is faced with falling prices or possible profits, decisions are sometimes made in an emergency that would be rejected with careful consideration, but pass in the “heat of the moment”. Not always for the benefit of the trader.

Sensible order additions such as stop loss and take profit help to outsmart the “weaker self” and to ensure that the opened positions are actually closed according to the theoretically worked out limits. No ifs and buts.

In addition, the trader can use a stop loss and take profit strategy to protect himself against sudden price falls, for example in swing trades – a necessary measure in view of the speed with which global markets react to unpredictable events today.

Stop Loss And Take Profit Strategy: Where Do You Put The Stop?

The question of the best possible stop…