Tuesday, August 12, 2008

Beginners forex - what is a stop loss ?

• Stop Loss Order – When an order is put in position it can be automatically stopped at a specific price and is commonly known as a stop/loss order. Stops are used keep the exposure to losses at a minimum if the market moves against an investor's position. For example, if an investor is long (investors purchasing position at lowest cost) at USD132.45 you may put in a preset stop loss order just in case the dollar drops. It can be set for any amount you wish but for example lets use USD131.55 as what we will set to minimize losses, that is if the dollar drops below your purchasing position. What we are aiming for here is for the dollar value to rise, but just on the off chance it drops the stop/loss order is a safety net.

• The only thing you can control in Forex is when you buy and when you sell so having set a stop loss order gives you a very small chance of control over losses keeping them to a minimum. Naturally this is something you are not aiming for as selling below your cost brings a deficit……hence the name stop/loss.

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