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Published on June 13th, 2019 | by admin

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Using Stop Loss and Negative Balance Protection in Online Trading

Learn about various risk management tools such as Stop Loss and discover the importance of Negative Balance Policy on the Vestle UK broker site.

Stop Loss and Negative Balance Protection are Invaluable for Traders

As any experienced trader knows, risk management is a crucial part of online trading. True, it’s not a “fun” topic or one that brokers usually promote in their adverts, but it remains essential to anyone interested in making smart, balanced trading decisions. There are many trading tools, features and trading strategies designed to assist traders in better managing risks and we will discuss a couple of them today.

Are these some fool proof methods that can guarantee you won’t experience losses? Of course not, but they can allow you to better manage your deals and have more control over the funds in your account.

Stop Loss (and don’t forget Take Profit)

One of the most commonly-used risk management tools is Stop Loss. This automatic market order enables traders to set a limit for an exit point that will cap their losses. Through Stop Loss, traders can protect themselves from extreme market decreases (with the exception of slippage) and have better control over their open deals. Because the order is executed automatically, Stop Loss is extremely important to traders who manage multiple deals or invest in CFD instruments from multiple markets. Stop Loss will come into effect regardless of whether you are inside the trading platform – and even if you are asleep.

How do you know where to set Stop Loss? That’s the million-dollar question. By setting the limit order too low, you will be exposing yourself to risk and by setting it too high, you might interfere with potential deal development that might lower your losses – or even result in a profit. There are many strategies traders use to try and identify the point where a Stop Loss order should be placed, and we recommend you do some further reading in order to determine which strategy better suits your needs.

Keep in mind that the “mirror” order of Stop Loss, called Take Profit, is just as important in risk management. Take the time to consider these limits and get to know them because using them correctly can be the difference between profit and loss.

Negative Balance Protection

Negative Balance Protection is not a trading tool, but rather a policy or a legal requirement. It essentially means that your account can never go into minus amounts and your losses can never exceed the funds in your balance. Why is this important? In the past, many brokers did not offer their clients this type of protection, leaving clients exposed to excessive losses and debts. Today, all regulated brokers must impose a legally-binding Negative Balance Protection policy, so all traders need to do is make sure they trade with an FCA regulated broker, such as the Vestle UK broker site.

The risk of not managing risk

For traders, the ostrich act is not an acceptable strategy. Sticking your head in the sand and mumbling “Risk? What risk?” is not likely to get you far. Instead, traders should be able to accept risk and even embrace it, attempting to curb it with the many tools available on the leading trading platforms. After all, without risk there would be no losses, but also no profits, and volatility remains the powerful force behind any financial market.

The materials contained on this document have been created in cooperation with Vestle UK and should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 59.5% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. Full disclaimer: https://www.vestle.co.uk/legal/analysis-disclaimer.html

 


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