Stop loss order definition
Stop loss order
A stop-loss order is an order type that triggers a buy or sell trade when the asset hits a specific price. Stop-loss orders are commonly set by traders to protect positions, by setting a stop-loss below their current trader, you can protect against outsized losses.
However, stop-losses do come with danger. If the price of an asset jumps over the price specified in the stop-loss order, the order will instead be triggered at a price below your stop-loss order, putting you at risk of even greater loss. For a premium fee many brokerages, including FOREX.com, offer guaranteed stop-loss orders, which guarantee your stop-loss is triggered at the specified price, even if the price action jumps over it.
Stop-loss order example
For example, a forex trader might place an order to buy EUR/USD at 1.0437 expecting the price to rise. To be safe, the trader will place a stop-loss order at 1.0300. If EUR/USD falls to or below 1.0300, their trade will be closed out at that price, but if EUR/USD rises and the trader decides to close their trade for a profit, the stop-loss order will be canceled.