What are Stop and Limit orders?

A stop-loss order is a risk management tool that automatically sells a security when its price drops to a specified level. This helps limit potential losses and protects your investment from significant downturns.

Characteristics of stop-loss orders:

Risk Management: A stop-loss order is primarily used to manage risk by defining a specific exit point for a trade. It allows you to cap potential losses without needing to actively monitor the market.

Automatic Execution: When the stop price is reached, the stop-loss order is activated and converted into a market order. The asset is then sold at the best available price, which may differ from the stop price due to market volatility.

Flexibility: Stop-loss orders can be placed at any price level, giving you the flexibility to customise your risk management strategy based on your risk appetite and market perspective.

How stop-loss orders work:

For Long (Buy) Positions: When holding a long position, a stop-loss order is set below the current market price. If the asset's price drops to the designated stop level, the order is triggered and becomes a market order, selling the security at the next available price. This helps limit potential losses by exiting the position early.

For Short (Sell) Positions: For short positions, a stop-loss order is placed above the current market price. If the price rises to the specified stop level, the order is triggered and converts into a market order, buying back the security at the next available price to help minimise losses.

‍Advantages of stop-loss orders:

• Limits Potential Losses: A stop-loss order helps protect your portfolio by automatically selling a security once it reaches a predetermined price, minimising potential losses.
• Promotes Emotional Discipline: It supports a more disciplined trading approach by reducing the likelihood of emotional or impulsive decisions during market volatility.
• Reduces the Need for Constant Monitoring: Once set, a stop-loss order works automatically, allowing you to step away from the markets without missing critical price movements.

Disadvantages of stop-loss orders:

• Price Gaps and Slippage: In fast-moving or volatile markets, the actual execution price may differ significantly from the stop price, potentially resulting in larger-than-expected losses.
• Triggered by Short-Term Volatility: Minor or temporary price fluctuations can activate the stop-loss, causing the sale of a position that may have otherwise recovered.

How can I place a stop-loss order?

1) Open a trade ticket in the platform.

2) From the trade ticket, you can choose the trade type (buy or sell) and enter the amount you wish to trade.

3) After you have entered the desired trade type and amount, click 'Add take profit/ stop loss'

4) Choose the stop loss/profit amount. Further, click on 'Take profit' or 'Stop loss' to choose your Type and Unit.

5) Confirm your order details and press 'Place order'.