Stop out on Forex will save you from excessive losses
Forex market opened up trading opportunities for individuals. Today, every person who has a certain start-up capital can be trained and successfully earn on the difference of courses. Brokers offer additional tools that make it easier to work on the exchange. One of them is stop out on Forex. This is an essential feature that is required by both traders and brokers. Let us consider in more detail why it is needed.
Stop out on Forex will not allow instant loss of money in an unfavorable situation
Forex trading is not always successful. Even experienced traders make mistakes or get news that changes the trend, resulting in orders become unprofitable. And one news can change the market so that any asset will soar in price or vice versa, will collapse in a few hours. In this case, you can lose everything that is earned for months, and sometimes years. To prevent this, professionals recommend the use of the function of a stop out.
Stop out is a tool that allows to close a losing order after reaching a certain amount on the balance. As a rule, it is set at 10-20% of the deposit. If there is a negative trend, due to which the trader’s positions deteriorate and reach the specified values, the function will automatically close the transaction.
Before activating the stop out, the trader receives a special notice called margin call. Usually the broker sends it when the amount drops to 30-40% of the deposit. In this case, the account holder can manually close the order before the instrument triggers, or replenish the balance and continue trading (if he is sure that the trend will change soon).
The main reason why this instrument is used is Forex leverage. It is 1:100, that is why it is possible to open orders a hundred times larger volume, and therefore receive the same profit from each point. If the value of the leverage was 1:1, the stop out would be impossible even in theory, but trading would not bring serious profits. Therefore, for individuals who do not have millions of dollars to enter, such leverage is the only chance to earn serious money. But at the same time there is a risk of losing them. Stop out is just necessary to ensure that the trader does not have a debt to the broker. It is not needed for any of the parties. Therefore, this option is critical.
As a rule, stop out is triggered because of the trader’s mistakes. The problems lie in psychology and the rejection of the basic rules of money management, which leads to a rapid loss of deposits. The most common reasons for activating the feature are as follows.
1. Playing for too much money. Newcomers enter the market, and for 1-2 unsuccessful orders drain the budget.
2. Refusal to use stop-loss. Moreover, the trader does not always have the strength to make a strong-willed decision to manually close the position, because he continues to hope for a quick trend reversal.
3. Work without strategy and system, which leads to the drain even with full compliance with the rules of money management.
Therefore, stop out is a mandatory tool for any broker. It allows traders to avoid debts, and to avoid the necessity of working with problem debts.