What is a stop loss order in foreign exchange trading?Stop loss orders are often used in foreign exchange transactions, and there are two types of stop loss orders:

1. Stop loss invoicing

The first one is the stop loss order that enters the market. These orders can be used for trading breakthroughs. If you believe that the euro/dollar will further rebound after breaking through the 1.1500 level, you can set a buy stop loss at 1.1501. When the market prints 1.1501, your buy stop loss will become a market order and the following best available price will be traded.

If you believe that if the euro/dollar falls below the 1.1200 level, it will continue to decline, you can set the sell stop loss at the 1.1199 level. When the market prints 1.1199, your sell stop loss will become a market order and will be executed at the following best available price.

2. Stop loss order closing position

You can also use protective stop loss orders to close transactions when the market moves a specified amount of your position. If you buy euros/dollars at 1.1500 and wish to limit the risk to 50 points, you can set a protective sell stop loss at 50 points below the entry price or at the level of 1.1450.

If you sell euros/dollars at 1.1400 and wish to limit the risk to 50 points, you can set the buy stop loss at 50 points above the entry price or at 1.1450 level.

If the trading direction is unfavorable to you, a stop loss order can allow you to close your position with a small amount of loss. So, stop loss orders are actually one of the risk management tools to minimize losses in adverse situations. If you have already long EUR/USD at 1.1740 and want to limit your losses during price declines, you must set a stop loss order after opening the position. If the stop loss is set at 1.1710, the stop loss order will help you automatically close your position when the price reaches 1.1710, avoiding further losses.