This article looks at the use of stop loss orders on the forex Australia market.
When you trade on the forex Australia market you need to consider the use of stop loss orders. Stop loss orders are something that you have to use with every trade that you open. It is important that you know what these orders are and how they will help you when you trade. You should also consider the different types of stop loss orders that are available to you.
What is a Stop Loss Order?
As the name would suggest a stop loss order is a trigger order on the forex Australia market that stops the losses you are facing. The stop loss is a type of limit order which is set at a pre-determined price and only triggered when the price action of the currency pair reaches this point. The stop loss order will always be placed in the area where a loss is made on the trade. There are a number of ways that people determine where the stop loss should be placed.
The Placement of the Stop Loss on the Forex Australia Market
There are two common methods that are used to determine the placement of stop loss orders. The first is through your risk management plan and the second is through a set amount of pips. The most commonly used method is the one linked to the risk management plan.
When you use this method you are going to be setting the stop loss order when you reach the maximum loss per trade that you have set. This amount is generally set at 2% of the trading account balance. There are some traders who set this amount at a much lower percentage and you need to consider this. You should never risk more than this amount on a single trade. If you do then you are going to be completing risky trading which could lead to you depleting your trading account.
When you use a set number of pips for your stop loss you could run into a number of different issues. The most important is that you are going to be risking more than your 2% of your trading account on the trade. You need to ensure that this is not the case when you open the trade. To do this you need to always know the amount in your trading account and what your risk percentage will be.
The Different Types of Stop Loss Orders
There are a number of different stop loss orders that you should know about. The two most commonly used are the hard stop and the trailing stop. Each of these stop loss orders will work differently and you will have to consider this when you place them.
The hard stop is the most commonly used stop loss order. When you use this order you are going to place the stop loss at a set price and it will stay there. Your trade will need to reach this price before the stop loss order is triggered.
The trailing stop loss order is the second type of stop loss that you need to know about. This order will move with your trade and remain a set number of pips from the price action.