Posts Tagged ‘stop loss’

Whenever mountaineers hike through unfamiliar treks, especially if the situation requires them to climb through dangerous mountain walls, there are tools that they use in order to ensure their safety.

Harness are used to secure themselves from unintentional slips that would put them to mortal danger. In Forex, traders also has this kind of tools. One of which is the Stop Loss.

Stop Loss is an order that is intended to close an opened position when a certain amounts of loss is accrued. Stop loss is designed to limit and restrict an investor’s loss when something negative happened suddenly on the market. There are 3 types of Stop Loss order:

1. Fixed Stop Loss – are set while opening a position and cannot be replaced until the deal is closed.

2. Sliding Stop Loss – is a Stop Loss that can be replaced any time depending on the price movement. It is on the traders discretion and advantage if he thinks that there’s a need for a sudden change in the order. Sliding Stop Loss is also known as Trailing stop, which can be replaced either manually or automatically depending on the setting.

3. Combined Stop Loss – is the combination of the former two.

There had been recent discussions regarding the importance of Stop Loss. Some traders pointed out that Stop Loss should be compulsory to trading because of its ability to secure and prevent further endangerment of the whole deposit. A safeguard from an unprecedented disaster for traders.

But some had ranted that it works as profits as well. When a position is opened a for a long time, temporary loss are incurred and that would be turned into real loss when a Stop Loss was suddenly activated.

12.10.2010 Post in Trading

The trading on the international currency market is divided into two groups: long-term and intraday. However, their methods and approaches are different. Today we will talk about the features of long-term trading on Forex market.

It is deductible from the term that this kind of trading requires a long period of time. This method implies a deal with “take profit” and “stop loss” orders.

In several days or weeks, or even months the trader sees that one of the orders got activated. In this case only two variants are possible – big profit or insignificant loss that depends on the level of your stop-loss. Besides, using long-term trading it is possible to close the deal in advance. Everything seems quite simple, but it is necessary to remember that before making a deal and setting the “take profit” order a serious analysis of the current market situation should be carried out.

The trader should foresee if the currencies are now going to move the right way and continue this behavior in the future. It is not a problem for an experienced trader – conclusions about currency fluctuation can be based on weekly or monthly flow chart.

There is one thing the trader should not forget about while long-term trading – it is swap. Swap sets a deposit limit for long-term traders. In case you open the position that moves against you, you will regularly lose swap. It means that even if your deposit is comparable to swap loss, you will not get any significant profit despite the fact the trend moves the right way. You will lose money every time the position is passed overnight.

In spite of the fact swap losses are not big, they are very frequent. On the other hand, swap can be means of earning in case of the right market movement. Passing the position overnight is not dangerous itself, but in case the direction is originally wrong the deposit should be big enough to resist price movement against it.

Long-term trading has a considerable advantage – losses are very rare. Risk of loss is even less when you deposit a considerable sum. Working with as little as 1-3% of your deposit you make sure it is well defended. Even if currencies move thousands pips against you it will not affect your deposit. Nevertheless, certain money management rules should be followed; otherwise, it is just as easy to lose everything in the future.

Long-term traders must have a lot of patience. You will have to wait for a long time; if you cannot wait so long, you probably should pick another type of trading – short-term trade.

Added by Alexey Skachilov,
InstaForex
Clients’ relationship manager