Stops on Forex or how to protect a trade from large losses

Forex trading is a rather risky business, so the main task of a trader is not only to earn money, but also not to be left without his own money.

Moreover, the latter happens much more often than the first, and the main reason why most beginners lose their own deposits is completely ignoring stops on Forex.

There are several options for protecting your position from a complete loss, each of which has its own advantages and disadvantages.

What exactly is this protection for? Firstly, you will not always be at the trading terminal, secondly, a connection break or other technical failure may occur, and thirdly, the rate may begin to change so quickly that during closing you will lose several extra points.

The first option of stop forex

Time-tested stop loss order , set when opening a new order, triggered as soon as the price reaches the level you specified.

For example, you bought euros for dollars at a price of 1.3050, the stop loss is at 1.3020, if the rate goes down instead of the expected growth, the order will close on its own at 1.3020.

The main advantage of this option is that the stop loss is triggered even when the trading terminal is not working.

And if we talk about the disadvantages, it is not always possible to set a value closer to 10-15 points to the current price; in case of gaps, it is triggered at the first available quote; you need to manually follow the price to take profit.

The second version of the Forex stop

Trailing stop is an analogue of the previous order, but unlike the standard stop loss, it independently follows the price and is triggered as soon as the price begins to go against the transaction.

The movement occurs only in the direction of profit, due to which its maximum fixation is achieved.

The only drawback is that the order only works when the trader’s terminal is running; the problem can be solved by transferring the terminal to a virtual server.

The third option for Forex stop.

Less common, but still quite popular, is hedging using a pending order.

In this case, under unfavorable circumstances, your transaction will not be closed, and in addition to it, even one position will be opened in the same volume.

For example, you opened a buy order on EUR/USD of 1 lot, at the same time, slightly lower than the existing price, we place a pending sell order, also for one lot. If the price goes down, the loss will be recorded, and then you will only have to choose which order to close.

Forced stops on Forex

We are talking about such tools as margin call and stop out, the first is a call from the broker with a warning that there are large losses on your transactions.

Stop out is an order from a broker to forcefully close a transaction as soon as the loss on the order exceeds a certain level. Most often this figure is 80-90 percent, that is, less than 20-10% of the funds remain in the account.