Lesson 4. What Is Stop Loss?
Stop Loss is a pending order traders set in advance to limit their losses. If the market moves against the trader's prediction, the trade will close automatically, without putting the whole account balance at risk.
Every trader defines a loss limit individually. However, the rule of thumb is not to risk more than 10% of your trade amount.
Here is how you can set your Stop Loss:
- You buy EUR/USD, and your investment amount is $1,000.
- As you open your trade, go to Take Profit/ Stop Loss
- In the Loss field, enter the desired amount. In our case, it is $100 or 10% of $1,000
- You’re done. When your loss reaches $100, your trade will close automatically.
To fully control your trades, use Stop Loss in combination with Take Profit. To learn more about Take Profit, please go to our next lesson.