Stop Loss
Stop Loss is limit losses by set stop loss order. When the price moves to the level where the order is placed. The stop loss order will automatically close the position at the specified price. The purpose of Stop loss is to limit the loss of investors’ funds.
When investors trade any asset. There is a chance that the price will move in the opposite direction as expected. This can cause a large loss of capital. If investors do not closely monitor trading positions Therefore, the Stop Loss Order saves the investor from being in front of the chart all the time. It is also a great risk management tool because limiting losses helps investors not lose all their investments at once.
The risk of losing money on each trade can be set, for example 1% of the capital or 5% of the capital. For example, Mr. George Buy EUR/USD at 1.18692, 0.01 lot, given The risk is 1% of the capital 1000$ (1% x 1000$ = 10$). Therefore, Mr George set the Stop Loss at the price of 1.17692 which is 1,000 pips from the buy price. Calculated in the amount of 10$ (0.01 lot x 1000 points = 10$) and later The price moves opposite George’s order until it arrives at the price of 1.17692. The Stop Loss Order is executed and closes automatically.