Disadvantages of The Stop Loss Traders working on forex most often hear about the need to install a stop loss order, a lot of articles are written about why you need a stop order and where to install it.
But, very rarely, who knows what disadvantages exist for this order and what needs to be done to reduce risks and harmful consequences.
And so, we all know that the main task of stop loss is to close the position when the specified loss indicator is reached, to beginners it seems that everything here is simple if not for several detrimental moments.
When the stop loss does not work;
These moments bear the most negative consequences, since the trader completely disconnects from the trade, assigning all the duties for insurance of the deposit to the established stop.
Gap (price breaks): According to the terms of trade of most of the brokers, all orders including stop loss are executed at the first reasonable price, that is, despite the stop loss set, the loss may exceed the planned loss by several times. And sometimes it can cause a deposit to be drained.
Slippage is a rather controversial issue, but sometimes, due to a sharp price movement, a stop loss can trigger a few points further, usually, it does not carry critical losses.
Due to the terms of trade:
Often brokers are prescribed that the order can only work if the price has reached the level and lasted for a certain time. But this is rather an advantage than a disadvantage.
First of all, hedging with a deferred order in the opposite direction is usually called, but besides that you have to pay a double spread, this order also does not work with a gap, that is, it will work, but after the price gap ends.
In addition to the above, in the place of one order you get two and now you have to choose which one to close first.