However, it is important to be aware of the potential disadvantages of using this type of order, such as being triggered by short-term price fluctuations and not being guaranteed to be executed at the stop price. In conclusion, a sell stop order is a useful tool for traders who want to limit their losses and automate their trading. This can result in larger losses than expected. In fast-moving markets, the price can gap down, meaning that the sell stop order is executed at a lower price than the stop price. This can result in the trader selling their position prematurely, which can lead to missed profits.Īnother disadvantage of using a sell stop order is that it is not guaranteed to be executed at the stop price. In other words, if the price briefly falls below the stop price before rebounding, the sell stop order may be triggered, even if the overall trend is still bullish. One of the main disadvantages of using a sell stop order is that it can be triggered by short-term price fluctuations. If the stop price is triggered, the order is automatically executed, which can save time and reduce the emotional stress associated with manual trading. Once a sell stop order is placed, the trader does not need to monitor the market constantly. By placing a sell stop order, the trader was able to limit their potential loss to a predetermined level, which can help to protect their trading capital.Īnother advantage of using a sell stop order is that it can help traders to automate their trading. In the example above, if the trader had not placed a sell stop order and the price had fallen sharply, they would have incurred significant losses. The main advantage of using a sell stop order is that it can help traders limit their losses. If the price falls to or below 1.1900, the sell stop order is triggered, and the trader’s position is automatically sold at the market price, limiting their potential losses. However, the trader is concerned that the price may fall if certain economic data is released, so they decide to place a sell stop order at 1.1900. In your case if you use a fixed stop of 30 pips and your spread is fixed at 5 pips, you should calculate your position size based on 35 pips.To illustrate this, let’s say that a trader buys the EUR/USD currency pair at 1.2000. If a trade is entered at the bid (sell trade) you would close that trade on the ask. If a trade is entered at the ask (buy trade) you would close that trade on the bid The spread is just the difference between the ASK and the BID (and quite often variable with a lot of forex brokers)Īs for your last line: YOU SHOULD ALWAYS FACTOR IN THE SPREAD. If your sellstop is at 1.0000 (current bid is above 1.0000) you will get triggered as soon as the BID reaches that price. ![]() In Forex if you set your buy stop at 1.0000 (current ask price is below 1.0000) this means that as soon as the ASK price hits 1.0000 your order gets triggered (long positions are opened at the ASK). Offset: To liquidate a futures position by entering an equivalent, but opposite, transaction which eliminates the delivery obligation. I googled offset in Forex trading, and found little but a definition by Investopedia: TP price = 0.9990 – 95 pips = 0.9895 (is this correct?)ĭoes that look roughly right? And for limit orders, the principle is the same, basically for any situations when the ASK price is used to get in or out of the trade, we should be factoring in the spread.Ĭould you explain what you mean with opening offset? Opening offset pips (bid) = 10 pips offset (as per normal)Ī. Position size should be calculated based on 30 pips SL not 35?ġ. SL price = 1.0010 – 30 pips = 0.9980 (set from the opening price WITHOUT spread, right?)Ĥ. Opening offset pips (ask) = 10 + 5 = 15Ī. Using these values for example purposes (in pips):Įxample price to set the pending order against = 1.0000ġ. So I am a bit confused about how to go about factoring in the spreads for buy or sell stop orders.
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