The success rate of any currency trader strongly depends on the risk managing techniques. We can’t avoid risk altogether, but we can find smart ways to minimize the damage and gain the most out of each trade with the help from tools like Forex stop loss, for example. Today we are going to discuss the different types of stop losses in Forex and how to effectively use them during trading. 

What Are Forex Stop Loss Orders

Let’s start with establishing what is stop loss in Forex. Unlike many aspects of risk prevention in currency trading, stop loss is a very straightforward tool. It does exactly that: stops losses. 

Foreign exchange market can be very fast-paced and volatile. Even if your analysis is extremely thorough and your strategy has always worked in your favor, there is always a chance of things going South. 

Smart traders know that avoiding the risk means not actually trading. That’s why there are multiple instruments and techniques to help deal with the possible drawback. Stop loss in Forex is a type of order, designed to stop the trading process automatically when price movement begins to get too much out of hand. 

Now, the technicalities of this process may vary depending on what type of Forex stop loss is used. The simplest of them all is the regular stop loss order. It is used when a trader wants to cover the rear by indicating at which particular point the trade should stop. 

Stop loss Forex tool comes in two main types: sell stop and buy stop. Once again, it is all pretty self-explanatory: sell stops are securing the gain during long positions by activating an order when price goes below the specified level, while buy stops do the same for short positions in case market price escalated beyond the expected limit. 

A trailing stop loss Forex tool is a slightly more interactive version of the regular one. The order will move along with the price if it goes in the opposite direction from it, however if the price towards the limit in either direction, it won’t move. This way traders have a chance to benefit from higher profits, while still ensuring that there is enough security behind the trade. 

There are two major challenges associated with using stop losses in Forex. One of these is insignificant price fluctuations that can trigger the stop order too soon, in case it was located too close to the price. The solution for this type of scenario is to learn how to calculate stop loss in Forex for every particular strategy and currency. 

Another issue traders face while using stop loss orders is gaping. Let’s take a couple of moments to fully understand what is the gap and how we can properly deal with it.