Many investors lose their significant investments without adequately protecting their operations. Stop-loss is an effective way to protect your invested capital. How does stop loss work on eToro? The following article answers this question in detail.
What is a stop-loss?
Stoploss is a risk management tool intended to add protection to your investment and prevent further losses.
Stop Loss is a setting to close a trade at a specific rate or amount.
Suppose the market reaches the required rate. And you lost the predetermined amount. The Stop Loss automatically activates and closes your position (order).
It protects your investment and prevents the market from falling too low.
How does stop-loss work on eToro?
Stop loss is optional. And you can set it up on demand once your trade is open.
- On eToro, you can set your stop loss based on the amount of money (Amount) or the investment rate (Rate).
- Each order requires a stop-loss except for unlever leveraged BUY orders.
- You can adjust your Stop Loss at any time while the trade is open. You can also remove Stop Loss by clicking No SL
- Under normal market conditions, the set Stop Loss is guaranteed.
- The set Stop Loss may not be triggered when the market is volatile. In this case, the Stop Loss is activated at the next available level. As a result, you can lose more than the set amount. eToro does not compensate for these circumstances. Because according to eToro, they do not interfere with market conditions or events.
Minimum stop loss and maximum stop loss
Minimum stop loss
The minimum stop loss is superficial. Generally, the minimum amount of Stop Loss is one pip from the current market rate.
However, the minimum stop loss is a bit different when it comes to cryptocurrencies, which are highly volatile assets. As of March 28, 2018, the formula is as follows.
- For profitable cryptocurrency trades, the minimum Stop Loss amount is 10% of the initial investment amount minus the current value of the trade. The formula is as follows:
Profit – (Invested amount X 0.1) = minimum SL
- For cryptocurrency traders who lose up to 10% of the invested amount, the minimum amount of Stop Loss is 10% of the initial amount invested. The formula is as follows:
Amount invested X -0.1 = minimum SL
- For cryptocurrency traders who lose more than 10% of the invested amount, the minimum amount of Stop Loss is one pip from the current market rate.
That is why it is not possible to set a stop loss too small when opening an order for trading cryptocurrencies.
Maximum stop loss
The maximum Allowable Stop Loss when opening a position is 50% of the position amount. Except for leveraged BUY orders, you can set a stop loss of more than 50%
This limit minimizes the risk to capital in the event of substantial market volatility.
How to place a trade with a stop loss
We want to show you how to set a stop loss with a specific trade order.
For example, you’re investing $1,000 in a BUY Platinum position, which means you expect the Platinum price to increase in value.
Step 1: Click Stop Loss to set your stop loss at a specific rate in the market.
Step 2: Enter the number or use the + and – buttons to adjust. In this example, the stop loss is set to 484.3 per price (Rate). So, if the price drops to 484.3, the Stop Loss order will activate and close the order (position) automatically.
You can also click the Amount button to view and set the stop loss as the amount. In this example, the SL ratio is 484.3, or $500. If the trade loses $500, the Stop Loss order will automatically trigger and close the order (position).
Since this is a leverage-free BUY order, you have the option to click No SL
Step 3: Set other order parameters and click Open Trade
Adjust stop loss with open trades
As mentioned above, you can adjust your stop loss with an open order. Here is the adjustment operation.
Step 1: Click on the relevant trade order in your wallet to open the Edit Trade window.
Step 2: Click on Stop Loss. If at the moment there is no stop loss and you want to add. Click Set Stop Loss.
Step 3: Adjust the Stop Loss settings.
Step 4: Click Update to save your changes.
Some frequently asked questions
Why am I being charged for changing the Stop Loss of my open order?
If you change your Stop Loss beyond the maximum allowable Stop Loss while an order is open, eToro charges the available balance as part of the Maintenance Margin feature. It acts as an additional safety net for your transactions. These funds are added to the investment amount of the trade.
To bring your money back to your available balance, reduce your Stop Loss.
If the position ends in profit, the debited funds are returned to the available balance, along with the amount initially invested and the profit.
Debited funds are only lost if the position closes with a loss that exceeds the original maximum Stop Loss.
Can I adjust the positive stop loss?
This is the Profit Lock: how to use your stop-loss order to make a profit.
However, remember that on eToro, only when the order is already profitable can you adjust the Stop Loss so that it is a positive number and the Stop Loss must be less than or equal to the profit.
Some simple rules to follow when locking in profits:
- Do your own trend analysis and decide on the direction and timing of trades.
- Waiting for the investment to earn a significant profit
- Decide the amount to protect
- Avoid placing your stop-loss order too close to the current market price to create a reasonable retracement in the market.
- Don’t guess yourself twice and convert your stop-loss back to a negative number.
- If the trend continues in your direction, continue to move your stop loss to a more significant positive number (Manual Stop Loss Monitoring)
- If the trend continues to move in the correct order, this also affects your “take profit” to make you take other potential profits.
My order was closed by stop-loss due to eToro crashing. Will I be compensated?
Surely you are compensated. eToro suffered such an accident. And eToro automatically repaid investors. Let’s say you are in the above situation and don’t have any automatic refunds. Please get in touch with customer support immediately to resolve it.
For investors, it is essential to know what take profit and stop loss are. It allows you to manage your open positions like a pro.
The effect of the stop loss is that you don’t have to manually manage your portfolio. You can specify your stop loss and place orders in the market. And you let it work.
In fact, there are potential limitations to a stop-loss order. So we recommend that you try trading on the eToro demo account.