Risk management might be the most important factor in dictating your long-term forex trading success – and the basic building block of any risk management strategy is the stop-loss order.
Stop losses are instructions to your trading provider to close your open position if it moves a certain number of points against you. They are useful for ensuring that your positions don’t incur running losses. You can even use more sophisticated types of stop, such as:
- Guaranteed stops, which can’t be affected by slippage (when a market gaps over your chosen stop level, meaning it executes at a worse price)
- Trailing stops, which follow your position if it earns a profit, then lock in if it turns against you
Limits (also known as take profits) are also a useful tool, automatically closing your trades when they hit your profit target.