Limiting losses and securing profits

In addition to manually closing a trade at the current price using market orders, there are also exit orders that allow you to set the maximum loss or profit you are willing to accept.

1. What are exit orders?
   
   
2. What do such profits mean?
   
   
3. What are stop - loss orders?
   
   
4. Types of stop - loss orders
   
   
5. Other types of orders

What are exit orders

Exit orders work similarly to entry orders, but instead of automatically opening a position, you use them to instruct your broker or trading platform to close a trade when the market reaches the level you set. Just like with entry orders, exit orders can be set as stop-loss or take-profit orders.

Exit orders are often referred to as "take-profit" orders for profit targets and "stop-loss" orders to limit losses. These orders are used to secure profit or minimize losses when a certain price level is reached.

What are take profits?

Take-profit orders are exit orders that you set to automatically close your position when it reaches a predetermined price that is better than the current price of the underlying asset. These orders help you follow your trading strategy and prevent you from constantly monitoring the market, which could lead to hasty decisions.

Imagine you are investing in XYZ company’s stock, currently trading at $100 per share. You decide to set a take-profit order at $110. If the stock price reaches this value, the order will be triggered automatically and your shares will be sold at the market price, realizing a profit of $10 per share.

What are stop-loss orders?

Stop-loss orders are tools that allow traders to automatically close a position when the price of an asset reaches a predetermined level, thus limiting potential loss. This order is a key element of risk management, as it helps protect capital from unpredictable market movements.

For example, if you open a buy position on EUR/USD at a price of 1.2200 and want to limit your loss to 30 pips, you set a stop-loss order at 1.2170. If the price drops to this level, the position will be automatically closed, minimizing the loss.

In addition to static stop-loss orders, there are dynamic orders, such as trailing stops, that adjust to the price movement in favor of the trader, helping to secure profits under favorable market conditions.

Types of stop-loss orders

There are two main types of stop-loss orders available when trading: standard and trailing (dynamic).

Standard stop-loss orders

A standard stop-loss order is set at a specific price level below or above the current market price. If the market reaches this level, the order is triggered, and the position is automatically closed, limiting potential loss.

Trailing stop-loss orders

A trailing stop-loss order is a dynamic tool that automatically adjusts to market movement in favor of the trader. If the market moves in the expected direction, the trailing stop moves in the same direction, securing profits while protecting against potential losses if the market reverses.
Example of using a trailing stop-loss order

Imagine you open a buy position on the EUR/USD currency pair at a price of 1.1000 and set a trailing stop order 50 pips below this price, at 1.0950. If the price rises to 1.1050, the trailing stop will automatically adjust to 1.1000, ensuring that if the price drops to this level, you won’t incur a loss.

Using stop-loss orders is crucial for effective risk management and capital protection in trading.

Other types of orders

These are the most common types of orders used, but there are several others that offer additional flexibility when trading.

One-Cancels-Other (OCO) orders

One-Cancels-Other (OCO) orders allow you to enter two orders simultaneously. If one of these orders is activated, the other is automatically canceled.

This type of order is especially useful for setting both stop-loss and take-profit on an open position. If one of the orders is triggered, the other will be automatically canceled, preventing an accidental trade. Most brokers, including y4trade, automatically set stop-loss and take-profit as OCO orders.

You can also use an OCO order when opening a new position.

Imagine you expect a significant move in the EUR/USD market but are unsure if it will go up or down. You can set a stop entry order 10 pips above the current price and a limit entry order 10 pips below. If the EUR/USD price moves 10 pips in either direction, a trade will be automatically opened, and the other order will be canceled.

If-Then orders

If-Then orders are essentially two-step orders, where the second order is executed only after the conditions of the first order are met.

These orders are commonly used to create an entry order that also has an attached exit order. Once your entry order is triggered, a stop-loss or take-profit order (or both) is automatically created.

If-Then orders provide traders with more flexibility and peace of mind. You don’t have to monitor the markets 24/7 to protect your position, and you can set multiple outcomes to ensure the best possible result for your trade.