Stops and limits

Stops can close your trade if the market moves a specified distance against you, while limits can close your trade if it moves a specified distance in your favour, reducing the time you need to spend monitoring your trades

Stops

A stop is a type of order – an instruction to us to close your trade at a specific price.

The most basic way you can utilise a stop is to control your risk, by specifying how many points you’re willing to let the market move against you, or how much money you’re prepared to lose, before you want your trade to be closed.

You can set a stop on the deal ticket at the same time you place your trade.

Gapping and slippage

However, it’s worth noting that stops don’t always close your trade at exactly the level you specify. The market may 'gap', which means it jumps from one price to another with no market activity in between. 

This is most likely to happen when you keep a trade open overnight or over the weekend, when the market’s opening price may differ from its previous closing price. In this situation, your trade will be closed at the best available price, meaning you risk losing more money than you’d anticipated. This is known as experiencing slippage.

Protecting your stop

You can ensure your stop is executed exactly where you’ve specified by changing it to a guaranteed stop. However, unlike normal stops which are free, if they are triggered you will be charged a fee for using them. 

Other ways to use stops

As well as using stops to close a position, you can also open new trades with them. These are called 'stop entry orders'.

Limits 

A limit is the opposite of a stop, set up to close your trade automatically after you have secured a certain amount of profit.

But you should bear in mind that this type of order could also prevent you from benefitting from further favourable price movements.

Discover our free trading courses

Learn from our experts at IG Academy, with step-by-step online courses, plus webinars and seminars designed to help you build your trading skills.

You might be interested in...