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Stop Orders


An instruction to deal if a market moves to a less favorable level (i.e. an instruction to buy if a market goes up to a specified level, or to sell if a market goes down to a specified level) is called a Stop Order. A Stop Order is often placed to put a cap on the potential loss on an existing position; which is why Stop Orders are sometimes called Stop-loss Orders. But can be used to enter into a new position if the market breaks a certain level.

Example
If you have a long USD/JPY position, which you bought at 111.50 and you want to set a Stop Order in case USD/JPY starts to fall (to stop your loss). You could set a Stop Order to sell USD/JPY at 111.10, this order will close your position with a 40-pip loss. You Stop Order is executed when USD/JPY is 111.10 Bid.





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