A stop-loss can help you to protect your account against losses and manage your risks effectively. A stop-loss automatically closes an open trade if the price moves against you and reaches the level you specified.
For example, if you have a long position of company XYZ at 109.58, you could set a stop loss at 107.00 – then, if the price falls steadily to this level, the trade will be closed automatically, thereby capping your losses.
Please note that this type of stop is displayed as a ‘Close at loss > Normal’ on the deal ticket. This can be attached to an order or modified at any time that the position is open. However, it’s important to note that the execution price of a ‘Normal’ stop order is not guaranteed and can be subject to slippage (ie filled at a worse level than specified).
For example, you have a long position in Australia 200 and the market has closed on Friday night at 10pm (UTC+1) at a level of 7600. You attach a ‘normal’ non-guaranteed stop loss at 7580.
The market opens at 11.01pm on Sunday night at 7550. As this, has moved below your stipulated level, the stop loss is triggered and the position is closed at the next available price (7550). This therefore incurs slippage of 30 points (7580-7550).
Slippage can be avoided by adding a guaranteed stop-loss order to your position.