Stop-loss orders

A stop-loss order is an order to buy or sell a financial instrument once it reaches a price that you've specified. When that specified price is reached, the stop-loss order triggers a market order to buy or sell the instrument. Most stop-loss orders trigger a market order to sell an instrument to cap losses at a certain level. For example, if you set a stop-loss order for 10% below the buy price, it will limit your potential losses to 10%.

The stop-loss order you’ve set will stay in effect either until it’s triggered, cancelled or your position is liquidated. If the instrument’s price falls below your threshold, your stake in the instrument will be sold at the next available market price. Because this process is automatic, stop-loss orders can help you stick to an exit plan should the market move against you. 

The stop-loss level is determined by you, the trader. When setting the level of a stop-loss order, it's sensible to take into account fundamental analysis​ of underlying market conditions and other factors, such as the potential for slippage. In trading, slippage is the difference between the expected price and the price at which a trade is executed. This price difference can occur in the fractions of a second between clicking or tapping on the screen to open or close a trade and the instruction being executed. Slippage is common during periods of high market volatility, which can peak around major news releases and other economic events.

When deciding where to set a stop-loss order, traders often allow for fluctuations or volatility in the market. The historical price action of the instrument and the wider market may also offer an indication of where to set a stop-loss order. If you’re going long (buying), the stop-loss should be placed below the market price. If you're going short (selling), the stop-loss should be placed above the market price.

Where to position a stop-loss order can also depend on context. A shares trader who is less focused on the immediate short term may choose a higher percentage distance from an instrument's current price level, whereas an active, short-term trader may choose a lower percentage distance away.

Stop-loss orders can be especially useful in volatile markets, such as forex. This is because there is more chance of slippage in a highly liquid and volatile market. Traders who use riskier short-term strategies, such as scalping, day trading and swing trading, might place GSLOs at specific exit points to limit potential losses. Learn more about trading strategies​ in the video on stop-loss orders, below.

When deciding where to place your stop, it’s important to consider how much you’re willing to lose. Consequently, a stop-loss order should be placed far enough away so that it won’t be triggered too early, but not so far away that there is a risk of losing significant capital. You should consider developing a trading strategy, planning when to enter and exit your trades. 

You can add stop-loss orders to all of your positions with our powerful trading platform​, which offers numerous technical analysis tools, chart types and other technical indicators. When you open an order ticket, it's easy to add a stop-loss order, take-profit order, or other market order.

When trading the financial markets with us, you can speculate on the price movements of underlying assets through spread betting or CFD trading. Spread betting is our most popular product and allows you to trade tax-free* in the UK. Here is an example of a hypothetical stop-loss order on a spread bet:

Let’s say you open a trade of £1 per point at a ‘buy’ price of 7,310, and add a stop-loss order at 7,300. If the price falls to 7,300, the stop-loss order would be triggered and your trade would be closed at the next available price.

However, if the price were to rise to 7,350, it could later fall to 7,300 and trigger your stop-loss. One way to guard against such a scenario would be to add a trailing stop-loss order.

Register for a spread betting demo account​ now to practise implementing your stop-loss strategy with virtual funds.

Stop-loss orders are an essential component of a sound risk-management strategy. Here's a summary of the key benefits: