When trading forex there are times when the risk becomes very high, such as when trading with high leverage. Guaranteed Stop Loss is a tool that manages risk and limits potential losses. It effectively closes any order when it reaches the predetermined specified level. It is an automatic instruction on an account that is processed no matter the conditions, therefore it is considered guaranteed by the broker.
How to manage the risk using stop loss
All traders should manage their risks and using a guaranteed stop loss Forex broker is one such way of doing so. A stop-loss tool secures positions when there is unexpected behavior in the market. It is particularly useful for Forex traders who trade when the market is volatile or when trading with high leverage. Also, it is a useful strategy when there is slippage or a gap in price, with prices changing at great speed. Trading with a Forex guaranteed stop loss broker is advisable. However, it is worth noting that not all brokers guarantee the stop at a set number.
Guaranteed Stop Loss Forex Brokers List
MAS, JFSA, DIFC
The Advantages of a Guaranteed Stop Loss Forex Broker
The main benefit of a guaranteed stop loss is that the trader doesn’t have to keep an eye on the market all the time. Also, if an event occurs when the market moves greatly, the traders don’t need to be online as their trade will close automatically, even if the market moves against them without their knowledge. The tools also allow traders to eliminate their emotions when making their trading decisions.
It doesn’t cost anything to execute a stop loss. The commission is only charged when the price of the stop loss is achieved. It’s rather like an insurance that’s free.
Of course, there are some disadvantages too. But these are mainly when using non-guaranteed stop-loss orders. The main disadvantage is that the stop-loss order could be triggered when there is just short-term variation in the price of a currency. So it is essential to choose a percentage for a stop-loss order that allows the normal fluctuation of the currency but while still preventing huge losses. For example, if you have a 5% stop-loss with a currency pair with fluctuation history of around 10%, this is not going to be a great idea and it will probably result in a loss of money from generated commissions.
There are no set rules for setting stop-loss orders but, in markets where currency prices change rapidly, it is wise to put a guaranteed stop loss order in place to protect the trader against any unexpected occurrences.