A stop-loss order is a market order that helps manage risks by closing your positions once the instrument/asset reaches a certain price. A stop-loss aims to cap an investor’s losses on a position.
A stop-loss aims to cap your losses by closing you out of the trade once your pre-determined figure has been reached. The stop-loss order you’ve set will stay in effect either until it’s triggered, cancelled or your position is liquidated. There are 3 different types of Stop Loss. (1) Regular Stop-Loss (2) Trailing Stop-Loss (3) Guaranteed Stop-Loss
Regular Stop-Loss. If the instrument’s price falls below your threshold, your stake in the instrument will be sold at the next available market price. By occurring automatically once your limit is reached, it provides an exit plan, preventing you from losing any further capital on that position.
Regular Stop-Loss can also be used to reduce margin on certain products with Margin Reducing enabled, when the Stop Loss price is set above or below threshold price indicated, the system will enable Margin Reduction for the specific order.
Trailing Stop-Loss order will follow, or ‘trail’, the price of a trade as it fluctuates. The trailing stop is set a percentage, or a specific number of points, away from the current market price, which accommodates for the fluctuation in the asset’s value, as the stop-loss adjusts.
For example, on a buy trade, the trailing stop will rise as the price of the asset rises, staying a pre-set distance away. If the market then begins to fall, the trailing stop remains at its new higher level. These stops aim to lock in profit by moving in the direction of a winning trade, while ensuring a cap is in place, in case the trade doesn’t go in your favour.
Likewise to a Regular Stop-Loss order, a Trailing Stop-Loss does not guarantee that you’ll exit the position on the price you set. If the market gaps or you experience slippage above or below your set stop-loss, your position will be closed at the next available price.
Guaranteed Stop-Loss offers complete certainty that a trade will close out at the exact price you set your stop, without running the risk of slippage, you can pay a premium for a Guaranteed Stop-Loss order. The premium is based on the current market price, and if the GSLO is not triggered, it’s refunded in full.
This is a robust risk management tool if you’re concerned about the market volatility or gapping, but can be cancelled or switched to a regular stop-loss order, or trailing stop, at any time.
The stop-loss level is determined by the trader, who might take into account fundamental analysis factors like current underlying market conditions and the likelihood of slippage occurring. Slippage in trading is the difference between the expected price and the actual price the trade was executed at. This can occur at periods of high market volatility, such as major news releases and events, when either entering or exiting the trade.
The stop-loss order lasts until either a) the stop-loss level is reached, b) the stop-loss is removed without closing the trade, or c) the trade is closed.
When deciding where to set a stop-loss, traders might account for fluctuation or volatility in the market. The historical movement of the asset and its financial market is also a good indication of where to set your stop-loss. If you’re intending to go long, the stop-loss should be placed below the market price, or it should be placed above the market price if going short.
Where to place your stop-loss can also depend on what type of trader you are. A longer-term investor may choose a higher percentage distance away, whereas an active trader may choose a smaller distance.
Stop-loss orders can be used for a wide range of trades, in volatile markets such as shares and forex trading. This is because there is more chance of slippage in a highly liquid market, and traders can take advantage of stop-loss limits. Traders can use risky short-term strategies, such as scalping, day trading and swing trading effectively by placing stop-loss orders at their desired points of exit. Learn more about trading strategies that can be used in conjunction with stop-loss market orders.
When deciding where to place your stop-loss, it’s important to consider how much you’re willing to lose. Consequently, a stop-loss 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. A trading plan should be developed so you can enter and exit strategically.
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.
Register for a live account and choose your product: spread betting or CFD (contracts for difference) trading. Alternatively, you can practise trading risk-free using virtual funds with a free demo account.
Choose an instrument from the product library and open a live trading chart.
From the drop-down menu beside the instrument name, select 'Order Settings'.
Here, you are able to customise stop-loss, take-profit, limit and stop-entry orders. You can set default measures in the form of a percentage, price amount in GBP, or points.
You can also choose how long the stop-loss order stays in place before expiry, from one day to open-ended. Learn more about trading on different chart timeframes.
Stop-loss orders are essential to your trading strategy. Some of the benefits of implementing a stop-loss to your trades are:
They are useful if you cannot monitor the market for extended periods of time.
They can help manage losses (particularly important when trading on leverage).
There is no cost to attach one.
It prevents loss aversion by automatically exiting, rather than holding on to losing trades.
Adding a regular stop loss on your trade position can potentially reduce your margin (ensure your account netting is disabled on account settings).
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