Forex Trading - Risk Management Part 3

Utilizing Stop Loss Order

A stop-loss is an order linked to a specific position for the purpose of
closing that position and preventing the position from accruing additional
losses. A stop-loss order placed on a Buy (or Long) position is a stop-loss
order to Sell and close that position. A stop-loss order placed on a Sell (or
Short) position is a stop-loss order to Buy and close that position. A
stop-loss order remains in effect until the position is liquidated or the
client cancels the stop-loss order. As an example, if an investor is Long (Buy)
USD at 120.27, they might wish to put in a stop-loss order to Sell at 119.49,
which would limit the loss on the position to the difference between the two
rates (120.27-119.49) should the dollar depreciate below 119.49. A stop-loss
would not be executed and the position would remain open until the market
trades at the stop-loss level. Stop-loss orders are an essential tool for
controlling your risk in currency trading.

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