Stop Loss & Take Profit
When a position is opened in any market, unless there is a facility to only allocate a specific amount to the deal. It is advisable for all clients to use both a “stop loss” and a “take profit” on the order, to protect their portfolio.
By using this method of control, it allows the client to be able to automate their portfolios and alleviates the need to continuously monitor the platform and open positions.
Is used to prevent further losses if the market turns against the opened position. It allows the investor to “set” a specific $ amount or PIP value that will automatically close the position at X “price”* (under normal market conditions).
Is used to take a specified amount of profit from the deal when the market moves in the investors favour. It allows the investor to “set” a specific $ amount or PIP value that will automatically close the position at Y “price”* (under normal market conditions).
It is important for the investor to remember a few things.
- At any time the position can be closed out, the client can manually override the set “stop loss or Take profit” values if they wish.
- Under normal market conditions, “Stop loss & Take profit” can be extended or reduced. Care should be taken not to “chase the markets”.
- If a price moves “significantly” in the favour of the investor then, a “Stoploss” can be moved into a “positive” position. Therefore the client will not lose any funds on this investment.
- It is important to remember that the markets constantly fluctuate, if Stop Losses and Take Profits are set too close to the “current market value”, positions will close very quickly.
Moving a Stop Loss into Profit
if a position moves significantly into profit, then it is possible to move the Stop Loss” into profit, therefore it will not be possible for the client to lose money from that point.This is in effect a “manual trailing stop”. Some platforms offer the ability to use an “automatic trailing stop”.