A Stop Loss (SL) is a risk management tool that allows traders to set a predefined price level at which an open trade will automatically close to limit potential losses. It helps protect trading capital and supports disciplined decision-making, especially in volatile market conditions.
A Stop Loss helps limit potential losses by automatically closing a trade when a specified price level is reached.
How Does a Stop Loss Work?
When you set a Stop Loss on a trade, you are instructing the trading platform to automatically close the position if the market moves against you and reaches your specified level.
For buy (long) positions, the Stop Loss is set below the entry price
For sell (short) positions, the Stop Loss is set above the entry price
Once the market reaches your Stop Loss level, the position is closed at the next best available price.
Important:
In fast-moving or volatile market conditions, trades may not always close at the exact stop-loss price due to slippage. This can occur with any broker and depends on market liquidity at the time of execution.
Stop Loss placement differs depending on whether the trade is a buy or sell position.
Stop Loss Example
You place a buy trade on EUR/USD at 1.1000 and set your Stop Loss at 1.0950.
If the price falls to 1.0950, the Stop Loss is triggered
The trade closes automatically, limiting the loss to 50 pips (plus any applicable costs)
A Stop Loss defines your risk before entering a trade.
Benefits of Using a Stop Loss
Using a Stop Loss provides several key benefits:
Risk Control: Helps cap potential losses if the market moves against your position
Emotion Management: Reduces impulsive decisions during volatile market conditions
Automation: Allows trades to be managed even when you are away from the screen
A Stop Loss is a foundational tool for consistent and responsible trading.
Where Should I Set My Stop Loss?
Stop Loss placement depends on several factors, including:
Your risk tolerance
Market volatility
Technical analysis (support and resistance levels, ATR, etc.)
Position size and overall exposure
Many traders use technical indicators or price structure to determine appropriate stop-loss levels rather than placing them arbitrarily.
Technical analysis tools are commonly used to guide stop-loss placement.
Can I Change My Stop Loss After Opening a Trade?
Yes. You can modify your Stop Loss at any time while a position is open.
In MT4/MT5, this can be done by:
Dragging the Stop Loss level directly on the chart, or
Right-clicking the open position and selecting “Modify or Delete Order”
Stop-loss levels can be adjusted in real-time as market conditions change.
Watch: Stop Loss Explained
This video explains how stop-loss orders work and how they can help manage risk in trading.
For educational purposes only. This is not trading advice.
If you need guidance on how to set up Stop Loss orders, our support team is happy to assist via live chat or email at [email protected].