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.

Forex trading, stop-loss order, Forex market, stop loss and take profit strategy, greed and fear, price plunges

PIX1861 / Pixabay – Valuewalk

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 loss drives both beginners and old hands, because of course it is annoying if a stop loss is set too tight and a trade closes that immediately recovers and then books rising prices.

However, if you set your stop loss too low, you have to bear the risk of undesirably high losses before the trade can close if the price plunges. There is just as little generally valid recommendation for behavior as there is no precise forecast of the development of the markets.

In order to get a feel for the handling of stop loss, traders have to deal with the possibilities of chart analysis and of course follow market events carefully.

What Problems Can Appear With Stop Losses?

There are two situations in which stop losses will not be executed, whether they are guaranteed or not:

1) With volatility: when there is a substantial increase in volatility, stops are in great danger of not being executed. These strong spikes in volatility usually occur with important news, both positive and negative, with unforeseen events and events.

Many brokers have a warning note on their websites in which they say that they are exempt from all responsibility if an order is not executed due to increases in volatility. So forget about claiming.

2) With gaps or gaps: let’s say they are areas on the chart in which no trading has taken place so that between one candle and the next, there is a blank space on the chart. Although the reasons are usually important news, the leak of rumors, corporate operations, and low liquidity should be added for specific markets.

What Do Experts and Experienced Traders Say about this Method?

On the Web, you can find hundreds of articles and reviews about stop-loss orders. In general, there are two key positions. On the one hand, most experts believe that this tool is a must-use for every trader. But, at the same time, others claim that it is ineffective for risk prevention. More to the point, some professionals think that it is even harmful as it provokes traders to make deals at disadvantageous terms.

When there are so many opposite thoughts and declarations, it is rather hard for a trader to formulate his own opinion, especially if he is new to the sphere of Forex trading.


We should get it into our heads that it is useless to have a perfect investment methodology that usually generates good entry and exit signals if we do not have correct risk management through stop losses and protection stops. So you know that the tricky thing is not knowing how to enter the market but how to exit.

Thus, the person who wants to be a good investor, a good trader must have a series of basic and essential pillars in their operations, and one of them is risk management through the correct use of stop losses.

Its importance lies in the fact that stop-loss prevents us from losing all our capital and continuing trading.

Internet Explorer Channel Network
News Related


Some workers fear 'unrealistically severe' cuts to Social Security benefits. Why that is not a reason to claim early

Senior couple in New York City. New York is the second-worst state for retirement. Allison Michael Orenstein | Getty Images By now, you have probably heard that the funds Social ... Read more »

If the billionaire tax survives, it may face legal challenges. Here's why

Sen. Ron Wyden, D-Ore., speaks during a Senate Finance Committee nomination hearing for Deputy Treasury Secretary nominee Adewale Adeyemo on Feb. 23, 2021.Greg Nash | Pool | Reuters As Democrats ... Read more »

Budget 2021: Rishi Sunak promises tax cuts by next election despite continued squeeze in the cost of living

Tax cuts will come before the next election, Rishi Sunak pledged on Wednesday as he laid out a Budget and spending review which promise a continued cost-of-living squeeze next year ... Read more »

Sunak cuts the Universal Credit taper rate to ease cost of living pressures

© Provided by City AM Rishi Sunak has today cut the Universal Credit taper rate in a move that will put £2bn back into the pockets of the country’s lowest ... Read more »

Will the Autumn Budget Universal Credit boost help you?

© Provided by This Is Money MailOnline logo The Chancellor has announced a change in the Universal Credit taper that will allow people to keep more of their benefits as ... Read more »

Rishi Sunak unveils spending spree with Scottish Government to receive extra £4.6 billion a year

Rishi Sunak has unveiled a budget that will see the Scottish Government receive an extra £4.6 billion a year. © Prime Minister Boris Johnson with Chancellor of the Exchequer Rishi ... Read more »

Medicare expansion hangs in the balance as Democrats race towards a deal

ATU Images | The Image Bank | Getty Images A major expansion of Medicare that Democrats proposed as part of the Build Back Better initiative is in danger of being ... Read more »

Bitcoin futures ETF may be a costly way to get long-term crypto exposure

boonchai wedmakawand | Moment | Getty Images Crypto enthusiasts had reason to cheer last week as digital currencies notched another milestone: the first U.S. bitcoin futures exchange-traded fund. Investors rushed ... Read more »

Millions will not benefit from Sunak's ‘tax cut for low paid', say activists

Millions of struggling low-income households will not benefit from the £2bn “tax cut for the low paid” announced by the chancellor in the budget as a way of easing the ... Read more »

Budget 2021 tax calculator: What the changes announced today mean for you and how much tax you will pay

Rishi Sunak has used the Budget to taper Universal Credit penalties for working claimants, while cutting air passenger duty on domestic flights and increasing the National Living Wage to £9.50 an hour. In an ... Read more »

Budget 2021: OBR forecasts council tax hike and rising cost of living will wipe out wage increases

Disposable income in UK households is expected to remain stagnant over the next few years, as inflation results in a higher cost of living that wipes out income growth, according ... Read more »

Avoiding the Price Trap: 3 Tips to Succeed as a Mission-Based Business

On this week’s episode of SUCCESS Line, I talk to Maria. Maria quit her job as a project manager two years ago to follow her dreams of starting her own ... Read more »

The era of surprise medical bills may be ending

staticnak1983 | E+ | Getty Images Americans will soon be protected from many unexpected medical bills, thanks to a new law that goes into effect Jan. 1. That legislation, called ... Read more »

Sundaram Finance looks at fighting vaccine hesitancy in TN as a 'moral imperative'

Chennai: Covid has been a tough time for the Sundaram Finance Group as the company has seen thousands of their customers and staff operating at various levels pass away during ... Read more »

Universal Credit: Budget changes to taper rate will only help a third of households in need

Changes to the universal credit allowances and taper rate will only help a third of households which have been relying on the axed emergency uplift of £20-a-week. Chancellor Rishi Sunak ... Read more »

Rishi Sunak £2bn tax cut to make Universal Credit 'reward work'

© Provided by Daily Mail MailOnline logo Rishi Sunak has revealed a £2 billion tax cut to make Universal Credit ‘reward work’ and help low-paid families with the cost of ... Read more »

Parents have nothing to thank Rishi Sunak for today

Take a big swig of the cheap rosé Rishi Sunak has promised, ladies, because you’re going to need it to swallow all the nonsense served up in the chancellor’s latest ... Read more »

Autumn Budget 2021: 'UK Government has shortchanged Scotland'

The Autumn Budget has been branded an ‘embarrassment’ and has ‘short-changed Scotland’, Scottish politicians have claimed, as the Chancellor unveiled a cut in aviation taxes and an increase in minimum ... Read more »

Gold loan securitisation volume stands at Rs 4,400 cr in H1 FY22: Report

<a href="/tag/gold-loan-securitisation“>Gold loan securitisation volumes stood at around Rs 4,400 crore in the first half of the current fiscal, same as volumes seen in the year-ago period, Icra Ratings said ... Read more »

Forex reserves surge by $58.38 bn in Mar-Sep 2021 period: RBI report

The country’s foreign exchange reserves surged by USD 58.38 billion in April-September 2021 to USD 635.36 billion, says an RBI report released on Wednesday. The forex reserves were at USD ... Read more »

Number of families paying inheritance tax will double

Thousands more families will be forced to pay inheritance tax in the coming years than previously feared, official figures have revealed.  © Provided by The Telegraph Man in a trap ... Read more »

Ask the Coach: I Don't Have the Mental Bandwidth to Tackle Growth in Every Area—What Do I Do?

I can’t seem to find the mental bandwidth to improve in all the areas of life that I want to improve. When I lean into my business, my health becomes ... Read more »

Minimum wage POLL: Is the rise from £8.91 to £9.50 enough amid rising cost of living?

Making his Budget speech in Parliament on Wednesday afternoon, the Chancellor said the hike amounted to a pay rise of over £1,000 per year for those working full time on ... Read more »

OBR warns 'wage spiral' could force interest rates to 3.5 PER CENT

© Provided by Daily Mail MailOnline logo The government’s watchdog today warned that a ‘wage spiral’ or energy shock could drive inflation to a three-decade high of  5.4 per cent ... Read more »

Furlough Budget update: Did Rishi Sunak extend furlough? Pledge to 'help working families'

The furlough scheme came into force during the first coronavirus pandemic lockdown in the UK. During this time, millions of Britons were unable to work and earn an income. However, ... Read more »

4 strategies to create and stick with a family budget

Guido Mieth | Stone | Getty Images The thought of creating a budget may make you stressed. Add a spouse or partner and possibly children into the mix and you ... Read more »

The Psychology of Motivation: Why Is Motivation So Powerful?

Motivation is an important driving force in people’s lives. It can affect both minor and major aspects of your life. Oftentimes, one’s level of motivation—or lack thereof—can determine their level ... Read more »

Universal Credit raised for 1.7million Brits in Budget U-turn - weeks after £20 cut

Universal Credit will be made more generous for around 1.7million working British families, Rishi Sunak confirmed today in a Budget U-turn. The Chancellor confirmed a cut in the taper rate ... Read more »

Pension Budget changes in FULL - what Rishi Sunak's announcement means for you

The UK has witnessed spectacular upheaval of pensions policy throughout the coronavirus pandemic, including the pause on the flagship Triple Lock policy which has left pensioners worse off. Individuals have ... Read more »

Budget 2021: Rishi Sunak promises ‘we will help families get by'

© PA Wire Budget 2021 Rishi Sunak on Wednesday promised help for families with the cost of living as he sought to build a “more innovative, high-skill” economy fuelled by ... Read more »

'Welcome news' for UK property owners as Rishi Sunak announces Capital Gains Tax changes

The deadline to file a tax return for those selling UK residential property will be extended, it was announced today.”In the small print announced in the Budget today, for those ... Read more »

Chancellor unveils tax cuts and benefits boost as he warns of 'challenging' months ahead

Chancellor Rishi Sunak has set out a series of tax cuts and a boost to benefits to help Britons with the cost of living, as he warned of “challenging” months ... Read more »

Budget: Rishi Sunak makes flights cheaper despite warning to cut UK's air travel demand

The government will cut taxes on domestic flights to make it cheaper to fly within the UK, Rishi Sunak has announced. © Independent Breaking News In a budget delivered just ... Read more »

Budget: Rishi Sunak cuts taxes on domestic flights days before Cop26 climate conference starts

The government will cut taxes on domestic flights to make them cheaper, Rishi Sunak has announced. © Independent Breaking News In a budget just days before the UK hosts the ... Read more »

How community leaders are bringing personal finance into the classroom

At CNBC's America's Financial Education town hall, community leaders from across the nation were honored for their commitment to educating students about financial literacy. Currently, only 21 states require financial literacy to ... Read more »

Meet the financial literacy leaders making a difference in their communities

Throughout Hispanic Heritage month, CNBC, in partnership with Acorns, asked communities across America to nominate local financial literacy leaders who demonstrated a commitment to educating those who are often left ... Read more »

Spice Money strengthens its senior leadership team

Rural fintech company Spice Money has announced the appointment of four senior leaders. This includes Vivek Venkatesan as chief financial officer for Spice Money, Sameer Nagpal as chief business officer ... Read more »

A divergence between the two largest chipmakers, Nvidia and Taiwan Semi, could widen, traders say

It's a tale of two chipmakers in the semiconductor space. Nvidia, the largest stock in the SMH semiconductor ETF, hit records Tuesday and rallied another 7% on hopes Facebook's investment ... Read more »
On you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic