A Forex stop loss is a function offered by brokers to limit losses in volatile markets moving in a contrary direction to the initial trade. It is an important elements of trade management and is just as important as the analysis one would do before opening a position.
The idea of good stop loss placing is to help you keep your losses small and avoid emotions taking control over your decisions. It is used by investors as it helps them to limit the losses and lock in the profits.
Stop Loss is an adjustable order to close the trade when the market moves a specified amount against your position and helps you minimize your losses in case the market moves in the opposite direction to what you expected.
Imagine you bought an Google’s share for $1242 and it is comfortable for you to set up a 10% stop loss. It’s means that you do not want to lose more than 10% from your invested money ($1242) or 1242 * 10% = $124. So you need to sell your Google’s share at $1118 (=1240-124) if the share price starts to fall.
Stop Loss in MT4However, the set Stop Losses are not guaranteed. It’s just a trigger you let your broker know that you want to sell it on the given price. Brokers don’t sign a guarantee for the execution of the stop loss, but they do it on the best available price for you.