What is a Stop Loss (SL)?
A predefined price level at which a trade will automatically close to limit potential losses.
- Purpose: Protects traders from significant losses by exiting a trade if the market moves against them.
- Example: If a trader buys a stock at $100 and sets a stop loss at $95, the trade will close automatically if the price falls to $95.
What is a Take Profit (TP)?
A predefined price level at which a trade will automatically close to secure profits.
- Purpose: Ensures that profits are locked in without requiring manual intervention.
- Example: If a trader buys at $100 and sets a take profit at $110, the trade will close automatically when the price reaches $110.
What is a Trailing Stop?
A dynamic stop-loss order that adjusts automatically as the market price moves in the trader's favor, locking in profits while minimizing losses.
- Purpose: Protects profits as the market moves favorably while still allowing room for further gains.
- Example: If a trailing stop is set at $5 and the market price rises from $100 to $110, the stop-loss level will trail up to $105. If the price drops to $105, the trade will close.
What is a Market Order?
An order to buy or sell a financial instrument immediately at the best available current price.
- Purpose: Ensures quick execution, ideal for high liquidity markets.
- Example: A trader places a market order to buy EUR/USD at the current market rate.
What is a Limit Order?
An order to buy or sell a financial instrument at a specific price or better.
- Purpose: Provides control over trade entry or exit prices but may not execute if the market doesn’t reach the specified level.
- Example: A trader sets a buy limit order at $95 for a stock currently trading at $100. The order executes only if the price drops to $95 or lower.
What is a Stop Order (Stop-Buy/Stop-Sell)?
An order to buy or sell a financial instrument once the market price reaches a specified level, turning into a market order upon activation.
- Purpose: Useful for entering trades when momentum confirms a trend.
- Example: A trader sets a stop-buy order at $110 for a stock currently trading at $100. The order triggers and executes if the price rises to $110.
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