SL Order Example CFDs

Stop Loss Order Meaning

Stop Loss Order is a type of order that's placed after opening a trade that is meant to cut losses if the market moves against you in opposite trade direction.

Stop Loss Order is a pre-determined point of exiting a losing trade and it is meant to control losses in cfd.

A cfd stop loss order is an order placed with your broker which will automatically close your open trade when the price of your open trade order reaches a pre-determined price. When the set level is reached, your open trade transaction is liquidated.

These orders are meant to restrain the sum of money that a trader can lose: by exiting the trade if a specific price that is against the trade is reached.

For example, one might open a buy trade and put a stop loss of 20 pips, if the price moves against the trader by 20 pips the stop loss order will be filled and the trade will be liquidated thereby limiting loss to 20 points (pips) - Stop Loss Order Definition.

Regardless of what you might be told by other traders, there's no question about whether these stop loss orders should or should not be used - stop loss cfds trade orders should always be used.

One of the more difficult things in in CFD is setting these stop loss orders - Stop Loss Order Defined - SL Order Example CFD. Put the stop loss order too close to your entry price & you are liable to exit the trade due to random market volatility. Place the stop loss order too far away & if you're on the wrong side of the trend, then a small loss could turn in to a large loss.

Critics will point out several disadvantages of these stop loss orders: that by placing them you are guaranteeing that, should your open trade position move in the wrong direction, you'll end up selling at lower prices, not higher.

Skeptics will also argue that in setting stop loss orders you're vulnerable to exit a trade just before market moves in your favor. Most traders have had the experience of setting a these stop loss orders & then seeing the price retrace to that stop loss order level, or just below it, & then go in the direction of their original market trend analysis. What might have been a profitable trade instead turns into a loss.

Experienced traders always use stop loss orders as they are an important part of discipline required to succeed in cfd because stop loss orders can prevent a small loss from becoming a large loss. What's more, by diligently placing these stop loss orders whenever you enter a trade position, you end up making this important decision at point in time when you're most objective about what is really happening with the market, this is because the most objective technical analysis is done before opening a trade. After entering the market an investor will tend to analyze the market differently because they have a bias towards one side of the market, the direction of their analysis - SL Order Example CFD.

Unexpected economic news can come out of the blue and dramatically affect the price: this is why it's so important to have a stop loss order set for your open trade. It is best to cut losses early when a trade position is moving against you, it is best to cut your losses immediately rather than waiting for loss to become a big one. Again, if you set your stop loss orders when you're entering a trade, then that is when you are most objective as a trader - CFD SL Order Definition.

SL Order Example CFDs

A key cfd question is exactly where to place a this stop loss order. In other words, how far should you place this stop loss below your purchase price? Many traders will tell you to set a pre-determined - max acceptable loss per trade, an amount based on your account balance rather than use technical indicators for calculating where to place the stop loss order - SL Order Example CFD.

Professional money managers advice that you shouldn't lose more than 2 % of your account equity on any one single trade. If you have $10,000 in capital, then that would mean the max loss you should set for any one trade is $200 - CFD SL Order Definition.

If you opened a trade then that would mean that you would limit your risk to no more than $200 for that specific trade. In which case you would set your stop loss order at 200 or the equivalent number of pips based on your position size of the trade that you have opened - Stop Loss Order Meaning - Stop Loss Order Management - Money Management. The topic of risk management is a wide topic & it is covered under learn money management topics.

• CFDs Money Management Introduction - Factors to Consider When Setting StopLoss Orders
• CFDs Money Management Strategies - Stop Loss Order Meaning - Stop Loss Order Management - Money Management

Stop Loss Order Meaning

Most important question is how close or how far this stop loss order should be set from the price where you entered the trade position. Where you set the stop loss cfds order will depend on several factors:

Because there are no guidelines cast in a stone as to where you should put these stop loss orders on a chart, we follow general stop loss order setting guide-lines used to help place these stop loss cfds orders correctly.

Some of the general cfd stop loss cfds order setting rules used are:

1. Risk Percent - How much is a trader willing to lose on a single trade transaction. The general stop loss order setting rule is that a trader should never lose more than 2 percentage of the total account capital on any one single trade transaction.

2. Market Volatility - market volatility refers to the daily price range movement of the instrument that you are trading. If cfd routinely moves up & down in a range of 50 pips or more over the course of the day, then you can not set a tight stop loss when you open a trade. If you do, you'll be taken out of the trade position by the normal market volatility.

3. Risk to Reward Ratio - this is the measure of potential risk : reward calculated before opening a trade. If the market conditions are favorable then it is possible to comfortably give your trade more room. However, if the market is too choppy it then becomes too risky to open a trade transaction without a tight stop loss - then don't make the trade at all. The risk to reward ratio isn't in your favor & even setting tight stop loss orders will not guarantee profitable results. It would be wiser to look for a better trade position to next time.

4. Cfd trade Position Size - if the trade position size opened is too large then even the smallest decimal price movement will be fairly big in risk % terms. This means that you have to set a tight stop loss for your trade which might be taken out more easily. In most cases it is better to adjust to a smaller trade position size so as to give your trade more space for fluctuation, by setting a reasonable stop loss level for this stop loss order while at the same time reducing the risk for the trade.

5. Account Capital - If your account is under-capitalized then you'll not be able to set your stop loss orders accordingly, because you will have a big amount of money invested in a single trade which will force you to set very tight stop loss orders. If this is the case, you should think seriously about whether you've enough capital to trade CFDs in the first place.

6. Market Conditions - If the price is trending up-ward, a tight stop might not be necessary. If on the other hand the price is choppy and has no clear market trend direction then you should use a tight stop loss or not open any trades at all.

7. Chart Time-Frame - the bigger the chart time-frame you use, the bigger the stop loss order level should be. If you were a scalper trader your stop loss orders would be tighter than if you were a day trader or a swing trader. This is because if you are using longer chart time-frames and you determine the price will be move upward it doesn't make sense to set a very tight stoploss because if the price swings just a little, your open order will be hit.

SL Order Example CFDs

The method of setting stop loss orders that you choose will significantly depend on what type of trader you're. The most oftenly used technique to determine where to set stop loss orders is - resistance and support areas. These support and resistance levels give good points for setting these stop loss orders as they are most reliable levels to set stop loss orders, because the support and resistance levels will not be hit many times.

Stop Loss Order Meaning

The method of how to set these stop loss cfds orders that you select should also follow the stop loss order setting guidelines above, even if not all these guidelines apply to your strategy try to implement the guide lines which will apply to your strategy depending on what type of trader you are.

CFD Stop Loss Order Defined - SL Order Example CFDs - Stop Loss Order Definition - Stop Loss Order Meaning - Stop Loss Order Management - Money Management