What is Stop Loss and how to set it up?
A trader, opening a Long or a Short Position, aims to benefit from the price movements of the underlying asset. The price may move far in the adverse direction while the position is open when a trader is not around to close it and fix the loss. To prevent uncontrollable losses, there is a tool called Stop Loss. In this article, let’s look closely at what Stop Loss is and how it works.
A Stop Loss is a type of order placed on a position and designed to limit a trader’s loss. If a price moves in an adverse direction and reaches a predetermined level, Stop Loss activates and closes the position to fix the amount of loss.
On MyBro, you can set the stop price in the order window by ticking the box for Protection Orders in the Trading Terminal and specifying the Stop Loss price of your choice.
Let’s look at specific examples:
Stop Loss on a Short/Sell position
You can use a Stop Loss order as a protection for your Short Position in case the market price goes up. Remember, that Stop Loss price should be entered above the current market price.
Example:
Let's say you open a position to sell 0.1 BTC at €6,500. However, as you may know, the market is volatile, so you want to limit your possible losses in case the price goes up.
For example, you wish to set Stop Loss price at €6,600. If the market price grows to €6,600, your position will be closed, preventing further losses.
In this case, Stop Loss on your short position will be triggered when Ask price reaches the price you have specified. Why Ask? Because your Stop Loss essentially closes the Short Position.