What is a STOP order?

Stop Loss or Stop Limit orders are orders that are in addition to the main position. They are characterized by the ability to close the main order, once a loss is reached at a level that has been predetermined.

It is a tool that allows you to manage risk and capital in a reasonable way. It allows you to pursue long-term strategies without having to think about your next move each time. Skillful setting of these orders allows you to stay calm during unforeseen situations in the market.

It is worth remembering that in the case of long positions, it can be executed only at the Bid price and placed below the current Bid price. From , on the other hand, in the case of short orders, it can only be executed at the Ask price and placed above the current Ask price.

Stop Loss Types

There are three basic types of stop loss orders.

The first is the so-called rolling stop loss, which is a variant in which our stop loss level will move following the price over a – predetermined – distance. The stop loss setting will take place only when the price moves in favor of the trader.

The second type is Forex Trailing Stop, a variant, that allows you to set the value of an order once and forget about it.

The third variation of stop loss, is the so-called capital formation, , which allows us to set the SL level at a certain % of the capital that we are able to risk on a specific transaction.

Stop loss setting methods

In the case of classic stop loss orders, setting them is nothing difficult. It boils down to determining the percentage risk limit per trade that we are able to accept, and looking at the stop loss calculator to determine how many pips off the price or what size position to enter.

Setting a Trailing Stop Loss is a bit more difficult. There are, however, many ways to set them. The easiest is to use a fixed distance between our level and the price. Using additional indicators, we can also set how much our indicator will move each time.

In the case of a stop loss order on capital, it is possible to calculate the profit/risk ratio in the context of the stop loss TP relationship, providing data, such as the stop loss distance and the percentage amount of capital to be invested.