What is a stop-loss order?

What is a stop-loss order? – It is a capital protection measure that traders use to limit the loss of the operation.
– It is the price level at which the position would be closed to avoid losses greater than the limit that the trader tolerates for a given position.
– It is an automatic execution order that closes the position without the trader having to continuously monitor it, so it provides certain security and operational convenience.

Risk management is one of the keys to success in the financial markets and a basic issue in money management.

Let’s look at the example above. The trader has opened a long position on the EURUSD expecting the price to rise to 1.09935, the level shown by the upper line. The lower line marks the Stop Loss level, set at 1.09842. If the market falls below the previous level, the position will be automatically closed at a loss, protecting capital from adverse movements beyond said price.

Generally no more than 5% of capital should be risked for each position. Stop Loss helps to minimize and contain losses in a controlled range.

In situations of extraordinary volatility, it is possible to suffer price gaps. In these situations, the Stop Loss may not be guaranteed. If the market moves too wide and the price at which the trader set the Stop Loss is missed, the Stop Loss will be executed at the first available price instead of the desired level, due to price slippage.

The Basic account, however, offers guaranteed Stop Losses that are executed at the price level set by the trader even in situations of great volatility where price gaps are generated.