On the best CFD trading platforms you can place an order called Stop Loss, which allows you to set a maximum limit to any losses in any given transaction. For example, if you open a CFD trading position on a particular asset, you can activate a Stop Loss at a certain quota, at which point the position will close automatically, effectively blocking further losses.
This is an automatic trading function (since it is activated automatically), but it must be set manually. This means that until the stop loss is manually set, the position will not be closed automatically.
Obviously, even if you set a Stop Loss, you will always have the option to manually close the open market position at any time.
It is advisable to always set a stop loss, especially in cases where it operates on very volatile markets. When you reach a certain level of experience, you can decide whether to leave more room for bearish movements in anticipation of subsequent increases.
Practical example of setting Stop Loss
Below we see how a Stop Loss order is applied on a trading platform. We will take as an example the Plus500 platform, because it is very intuitive and therefore optimal for this tutorial.
Consider the hypothesis of opening a bullish position on the EUR/USD pair. From the list of categories we select Forex and then click on the Buy button for the EUR/USD exchange rate from the specific list.
When you click on Buy you can access the order details window, which looks like this:
Now, in addition to reducing the amount of euro on which to trade (we can take it to a minimum of 10,000 with a required margin of a few tens of euro), we can also set the Stop Loss. To do this, tick the Close at loss box.
As you can see, checking the Stop Loss box also displays the maximum amount of loss at which it will be activated. This is a default quota, which you can modify at will.
For example, to garner more elasticity, we could place it at 1.140 euro.
We have therefore changed the settings as follows:
- By entering a lower quantity of euro to be traded (we have chosen the minimum for this example, but you can insert any amount you prefer based on the minimum margin you decide to invest)
- Setting the stop loss to a quota for which we would lose a maximum of €16.08 (in case there was a percentage variation of -1.53% in the listing of the CFD EUR/USD)
To open the position with these settings, simply click on the “Buy” button.
Add Stop Loss to an already open position
In addition to applying it to a position yet to be opened, a Stop Loss can also be applied to an already open position.
This is in effect an amendment to an order. In the best trading platforms, this option is always available and does not incur any additional costs.
On Plus500, for example, in order to apply a Stop Loss to an already open position (perhaps because you forgot to apply it at the start), you can proceed in two ways:
- By clicking on the “Edit” button located in the list of assets just below the instrument on which you are negotiating
- Or by entering the “Open Positions” section, finding the position to be modified, and clicking on “Edit”
The modification operation for adding the Stop Loss does not differ with that seen previously for opening the position. Once the Stop Loss has been defined, you can click on “Update”.
Modification of an already defined Stop Loss
In addition to adding a Stop Loss to an already open position, you can also modify a previously defined Stop Loss.
So, if you decide to increase or decrease the Stop Loss, you can accomplish this by proceeding with he steps detailed in the previous paragraph. The procedure is identical.
What can happen without Stop Loss
A position could be closed automatically without a Stop Loss only if the broker does not foresee debit situations and then close all positions unilaterally. However, not all brokers provide this service. One broker that does not allow you to overinvest the available capital on the account and therefore doesn’t require the trader to be overdrawn, is Plus500.
Go to lesson 4b – Stop Limit (Take Profit), what it is used for, how to use it