Stop Loss Order and Stop Orders

Trading Points

Stop Loss Order and Stop Orders
Some traders are confused with the terms ‘stop loss order’ and ‘stop order’.

Basically there is no difference. Both orders are exercised to trigger a buy or sell order when prices move in a certain direction. ‘Stop loss orders’ are to stop you losing money if your trades go against you — it is a stop order to reduce a loss.

A ‘stop order’ can be used to enter or exit a position. For example:

You have bought the SPI @ 3036 and you only want to risk 10 points. You enter an order to sell @ 3026 (3036 – 10) on stop. If prices move down and trade at 3026 then your order will become a market order and sold as soon as possible (this is to stop a loss).
You want to buy the SPI if it starts to move up past 3038 — to confirm the up trend. Your order would be to buy @ 3038 on stop. When prices move up and trade @ 3038 then your order becomes a market order and you are bought as soon as possible.

These are both stop orders – one to reduce a loss and one to enter the market.

The use of stop orders allows us to manage our risk when trading and is one of the advantages in trading futures.