How to Manage Trading Risks with Market or Limit Stop Loss Orders


When you’re learning how to become a better trader, the chances are that you’ll track down all the useful information you can get your hands on. You might read up on the latest StockTwits review, or think about joining a trading course. However, it’s important to remember that there’s more to becoming a great trader than knowing how to choose your stocks. You also need to know when you should step back from a position. Stop loss orders are a part of a successful risk management strategy, and they’re designed to limit the money that you lose in a single trade. The idea is that you exit the trade if the position reaches a specific price. For instance, if you buy a stock at a price of $30, and you expect that price to rise, then you might put a stop loss order on a cost of $28, so you don’t lose too much money. Most professional traders use some form of stop-loss strategy, but there are different types to choose from.

What Are Stop Loss Market Orders?

Stop loss market orders are based on “stop market orders.” These are orders that you place at a specific price for your positions on trades. If you’re the price of your position reaches that order price, then your order will go live. For instance, you could put a stop market order on a trade if it raises by 10%, and that would tell the system to sell your position and give you a profit. Market orders are automatically filled when the price of your trade reaches a specific point. This means that if your position drops at all, you’ll be able to get out of the trade before you potentially lose too much money too. However, there is a risk of something called “slippage,” in the trading market that could mean that your stop loss market order executes at a price that’s worse than you thought. Though these issues do occur, they’re less common when you’re dealing with high-volume day trading assets. In the rare case that you don’t get out of a trade at the right time, you will at least exit the position before it becomes too drastic.

What are Stop Loss Limit Orders?

An alternative to stop-loss market orders, stop loss limit orders use stop limit orders as their order type. With a stop limit order, you place your stop request at a certain price, and if the market price reaches that order price, your order will be executed. Limit orders are only filed at a specific order price, and they’re not always filled. This could mean that in certain circumstances, you won’t be able to get out of a losing trade with a stop loss limit order. If your market moves too quickly, your stop loss limit order may remain unfilled forever, which means that you consistently see bigger losses until you can manually remove yourself from the position. The greater risk involved in stop-loss limit orders is why most experts recommend using stop-loss market orders to mitigate trading threats.

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