Stop Loss Orders

A stop loss order follows the same basis as that of the limit orders, by allowing the forex trader to set an exit point for a loss. By limiting your losses to a pre set position, stop loss orders help investors control their risk exposure. By placing them well in advance, you have an accurate idea of how much a loss will be, in case the stop loss order is hit.

Another use of the stop loss is to lock in profits, in which case it is referred to as a "trailing stop". The stop loss order is set at a certain percentage level below the current market price. The price of the stop loss adjusts as the currency price fluctuates. Remember, if a currency goes up, what you have is an unrealized gain, which means you don't have the cash in hand until you sell. Using a trailing stop allows you to let profits run while guaranteeing at least some realized capital gain.