A stop is a type of order – an instruction to your provider.
You can use stops and limits to close your position automatically when a certain price point is reached
The most basic way you can utilise a stop is to control your risk, by specifying how many points you’re willing to let the market move against you, or how much money you’re prepared to lose, before you want your bet to be closed.
You can set a stop on the deal ticket at the same time you place your bet.
Gapping and slippage
However, it’s worth noting that stops don’t always close your bet at exactly the level you specify. The market may 'gap', which means it jumps from one price to another with no market activity in between.
This is most likely to happen when you keep a bet open overnight or over the weekend, when the market’s opening price may differ from its previous closing price. In this situation, your bet will be closed at the best available price, meaning you risk losing more money than you’d anticipated. This is known as experiencing slippage.
Protecting your stop
You can ensure your stop is executed exactly where you’ve specified by upgrading it to a 'guaranteed stop' (if your provider offers them). However, unlike normal stops which are free, your provider will usually charge a fee for using them. With most providers this will take the form of a wider spread, but some will only charge if your stop is triggered.
Other ways to use stops
As well as using stops to close a position, you can also open new bets with them.
A limit is the opposite of a stop, set up to close your bet automatically after you have secured a certain amount of profit.
But this type of order could also prevent you from benefitting from further favourable price movements.
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