{"version":"1.0","provider_name":"For overseas forex cashback services, try Money Charger","provider_url":"https://money-charger.com/en/","author_name":"admin","author_url":"https://money-charger.com/en/author/admin/","title":"[Overseas Forex] What is a Stop-Loss Order? Meaning, Calculation Method, Levels, etc. Explained for Beginners - Money Charger (Overseas Forex Cashback Service)","type":"rich","width":600,"height":338,"html":"[Overseas Forex] What is a stop-loss? Explanation of its meaning, calculation method, and levels for beginners
\n","description":"When starting overseas forex trading, it's crucial to understand \"stop-loss.\" Especially for beginners, not knowing how stop-loss works can lead to significant losses. Therefore, this article provides a thorough explanation of stop-loss in overseas forex, including its mechanism, meaning, calculation methods, terminology such as stop-loss levels, and important precautions. Those starting overseas forex trading should refer to this article. For overseas forex beginners, we recommend reading this complete guide for beginners. What is the mechanism and meaning of stop-loss in overseas forex? Detailed explanation of terminology and calculation methods. Let's begin by explaining the mechanism and meaning of stop-loss in overseas forex in a way that even beginners can understand. A stop-loss is a mechanism that automatically closes positions. A stop-loss is a mechanism in forex trading where, if losses exceed a certain level, the forex company forcibly closes the position to prevent losses exceeding the investor's deposited funds (margin). Some may worry, \"Won't I suffer a large loss if my position is suddenly closed?\" However, the forex company will issue a margin call before the stop-loss. About Margin Calls Before Stop-Loss A margin call is a warning that alerts you to a drop in your margin maintenance ratio before a stop-loss is triggered. Some FX companies call it an \"alarm\" or \"alert,\" and it's a warning that will inform you of a stop-loss in advance. While a stop-loss forcibly closes all positions, a margin call is a prior notification. It varies depending on the FX company, but many companies seem to issue a margin call when the margin maintenance ratio falls to 50-70%. Imagine a margin call as a yellow card in soccer, and a stop-loss as a red card. What is the stop-loss level? The stop-loss level is the standard at which a stop-loss is executed in FX trading. A stop-loss is forcibly triggered when the margin maintenance ratio falls below a certain level. This margin maintenance ratio is the stop-loss level. The stop-loss level varies depending on the FX broker, so be sure to check it in advance. When is a stop-loss executed? The timing of a stop-loss execution depends on the stop-loss level set by the FX company. A stop-loss is executed when the margin decreases and the funds remaining in the account fall to the predetermined margin maintenance ratio. For those just starting out in FX trading, it's a good idea to deposit a sufficient amount of money in advance to avoid being stopped out. It's also recommended to trade with a low leverage setting. Those who trade with high leverage should also check out recommended high-leverage trading methods and tips. Calculation of Margin Maintenance Ratio: The margin maintenance ratio is the ratio of net assets to the margin required to hold a position in FX trading. The margin maintenance ratio is calculated using the formula: \"Net Assets ÷ Required Margin × 100\". An example calculation is shown below. Calculation until Stop-Loss Execution: Here, we calculate how long a position can be held before a stop-loss is triggered if losses occur in FX trading. The Benefit of Stop-Loss: Preventing Further Losses: The biggest benefit of stop-loss is that it protects investors. Without stop-loss, there is a risk of losing all deposited collateral (synonymous with margin) or having to pay additional funds. However, losses may exceed the deposited margin: In the event of extremely sudden market fluctuations such as crashes or surges, stop-loss may not be executed in time. In that case, there is a possibility of losses exceeding the deposited margin. To reiterate, a stop-loss order does not guarantee execution at a price that brings the margin maintenance ratio to 100% or the amount of loss. It is important to be aware that losses may exceed the margin deposited by the investor. So, how can you avoid a stop-loss order? To avoid a stop-loss order, \"add margin\" To avoid a stop-loss order, you need to manage your positions with some leeway. To do this, \"add margin\". By adding new margin, your effective margin increases, so you can avoid a stop-loss order. However, caution is needed when \"adding margin\". This is because if a trend (a phenomenon in which the market moves in one direction) occurs, depositing additional margin will increase the risk of a stop-loss order again. If a stop-loss order is executed, there is a risk of losing even the additional margin you deposited. In that case, you will incur even greater losses. Alternatively, you can close part of your position Another way to avoid a stop-loss order is to close part of your position. By closing part of your position, your effective margin increases, and you can avoid the risk of a stop-loss order. However, just like adding margin, this should be done while monitoring market conditions. Since this is only a temporary avoidance measure, the risk of a stop-loss will continue if a trend develops in the market. Furthermore, continuing to hold a position with unrealized losses carries more than just the risk of a stop-loss. Because your funds are tied up, you may run out of funds when a trading opportunity arises, preventing you from making new trades. […]"}