These orders are exceedingly essential towards helping you to do proper management of forex risks and helping you to close trades in profits.
Stop-loss order is utilized by a trader to automatically close an open position when the trade is moving against him or her. You can choose a particular price level above which you do not want to stay in the trade. As soon as that price level is attained for the particular currency pair you buy or sell for a specific time period, the broker will automatically close your trade.
By setting your stop loss with your broker, you don’t need to exit trades manually rather your broker automatically closes your trade as soon as the price reaches the level you set. The stop loss is at all times positions in the opposite direction of your trade:
- When you go long (the implication is that you anticipate that the price of the currency pair will rise), your stop loss ought to be set underneath the present rate of the currency pair.
- When you go short (The implication is that you are anticipating that the price of the currency pair will fall), you’d need to set the stop loss on top of the present price level of the currency pair.
The benefit of this forex trading method is to reduce your losses in the event that the price starts to trend against your expectation and in the opposite direction.
Forex losses are inevitable. However, with the use of stop-loss, you will be limiting your loss to the barest minimum by pre-setting a calculated amount that you can comfortably bear.
While the stop-loss limits your loss, the take profit order also automatically help you to cash in your profits. It is basically the opposite of stop loss and works exactly like a strop loss in the opposite direction.
You need to preset the price level in such a way that when the position is attained your trade position would automatically be closed by your broker. The way to go about it is to figure out what your potential gain on that particular trade is likely to be and as soon as you get to that price level, your broker closes the trade in much the same way as the stop loss.
It is essential to always implement a stop loss with the take profit order.
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