Stop Loss

In this lesson of the CFD course we explain what the  Stop Loss order in CFD is  , how it works and when it is advisable to use it.

On all CFD trading platforms it is possible to place an order called  Stop Loss  , which allows you to  set a maximum limit for the losses  of a given trade.

For example, if you open a position up or down on a certain asset, it is possible to trigger a Stop Loss at a certain level, after which the position will automatically close, effectively blocking further losses.

To easily learn how to use the stop loss, use  this platform  , which is the same one we used for the practical example in this article.

Stop Loss CFD activation

Although this is an  auto-negotiation feature  (as it is activated automatically), it is important to note that it  must be configured manually  .

This means that as long as you do not manually set the stop loss, the position will not be closed automatically.

Obviously, even if you set the Stop Loss, you will always have the possibility to manually close the open market position.

It is advisable to always set the SL, especially in cases where you operate in very volatile markets  . When you reach a certain level of experience, you can decide whether to leave more room for bearish movements in anticipation of subsequent rises.

Practical example of Stop Loss configuration

Below we see  how a stop loss CFD order is applied on a trading platform  . We will take the eToro platform as an example, as it is very intuitive and therefore optimal for this tutorial.

Consider the hypothesis of opening a bullish position in the EUR / USD currency pair, or the euro dollar. From the list of assets on the left, we select EURUSD.

Once selected, the window with information about the selected asset will be displayed in the central part of the platform. At the top we can see the main details.

To open the order window, click on the blue button on the right, which displays the word “Invest”.

Before continuing, let’s reduce the volume of the trade. In this way we can invest less capital.

Since we want to open a higher position, we will have to make sure that the “Buy” option is selected at the top.

In the same order window, you can set the SL and take profit, pre-order and open the trade (i.e. open the position). By clicking Stop Loss, you can easily configure it.

How to set the stop loss in practice

So at this point we just have to configure the SL. In the same order window, click Stop Loss.

At this point, we can set the SL level.

The SL level can be configured in two ways:

  • Price (of the asset): that is, establishing the price level of the asset, which in this case is given by the exchange rate between the euro and the dollar. That’s the quote. If the price reaches this level, the position will be closed automatically.
  • Amount (see figure below): that is, establishing a maximum loss value for the transaction. If the trade reaches this loss, the position will be closed automatically.

Stop Loss for rising and falling positions

Always keep in mind that the stop loss is placed in two different positions depending on whether you open a position up or down:

  • Buy – If you open a bullish position, the CFD stop loss will be below the current price
  • Sell: if you open a short position, the stop loss will be above the current price

On user-friendly webtrader platforms this factor will be calculated automatically, while on complex platforms like MetaTrader 4 it will not.

Open the trade after applying the SL

Once the desired stop loss has been applied, the trade position can be opened.

To do this, simply click on the “Open position” button. On other platforms, it may have another name such as “Buy”, “Sell” (if you are trading) or “Trade”.

Add Stop Loss to an already open position

Let’s open an example trade position with a stop loss set at 1.0947.

In addition to applying it to a position yet to be opened, you can also  apply Stop Loss to an already open position  .

This is for all purposes a  modification of an order  . On the best trading platforms, this option is always available and does not require any additional cost.

On the eToro platform, for example, to apply an SL to an already open position (perhaps because you forgot to apply it at first), you can proceed as follows:

  1. Access the «Portfolio» section by selecting it in the left column
  2. Click on the asset whose stop loss you want to change
  3. Now you can see the details, between which you can change the SL by clicking on «Buy / Sell» related to the asset (in our example «Buy EURUSD»)

Clicking on the 1.09000 button (if we hadn’t set it, it would have been SL) you can access the Stop Loss edit window.

From here you can modify the stop already entered. If you haven’t entered it, you can configure it with the same window.

What can happen without SL

Without Stop Loss on CFDs, you may incur losses that are higher than planned.

It must always be borne in mind that without SL a losing position and that does not show signs of stopping can consume all the available capital in the trading account.

For this reason, even if you monitor a trade very constantly, it would always be better to apply an SL.

Go to next lesson: Take Profit, How to Capture Profit Automatically

Frequently asked questions about Stop Loss CFDs

What is Stop Loss?

It is an online trading order with which the platform is asked to automatically close a position when it reaches a certain loss threshold. Where is the Stop Loss set?

To configure Stop Loss in CFDs, you must access the order window on the platform, after selecting the asset in which to trade. How is Stop Loss configured?

In the order window it is necessary to configure the parameter related to the specific element “Stop Loss”. For bullish positions, it must be set below the current price. For short positions, it must be set above the current price. When does the CFD Stop Loss take effect?

The SL goes into operation when the price reaches the set level. At that time, the position is closed.