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This website is managed by Ultima Markets’ international entities, and it’s important to emphasise that they are not subject to regulation by the FCA in the UK. Therefore, you must understand that you will not have the FCA’s protection when investing through this website – for example:

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Stop Loss

/stɒp lɒs/

Definition

A stop loss is an order placed with a broker to automatically close a trade once the price reaches a specified level, designed to limit a trader’s loss on a position. It’s one of the most widely used risk management tools in trading, helping protect capital without requiring constant manual monitoring of the market.

How It Works

A trader sets a stop loss at a specific price below the entry point for a buy (long) position, or above the entry point for a sell (short) position. Once the market price reaches this level, the stop loss triggers a market order to close the trade, limiting further losses.

Standard stop losses are subject to slippage, meaning the trade may close at a slightly different price than specified during periods of high volatility, low liquidity, or market gaps, since the order executes at the next available price rather than the exact level set.

Traders can set stop losses at a fixed price, a percentage below entry, or based on technical levels such as support, resistance, or volatility indicators like the Average True Range (ATR).

Examples

  • Long position: A trader buys a stock at $50 and sets a stop loss at $47, automatically closing the position if the price falls to that level, capping the loss at $3 per share
  • Short position: A trader shorts a currency pair and places a stop loss above the entry price to limit losses if the price rises instead of falling as expected
  • Volatility-based stop: A trader uses the ATR indicator to set a stop loss a calculated distance from entry, accounting for the asset’s typical price fluctuations

FAQs

What’s the difference between a stop loss and a guaranteed stop loss?

A standard stop loss can suffer from slippage during volatile markets, executing at the next available price rather than the exact level set. A guaranteed stop loss ensures execution at the exact specified price, though it usually comes with an additional fee.

Where should a trader place a stop loss?

Placement depends on strategy, but common approaches include setting it below support (for long positions) or above resistance (for short positions), or using volatility-based methods like the ATR to account for normal price fluctuations.

Table of Content

  • Definition
  • How It Works
  • Examples
  • FAQs

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RISK DISCLOSURE

Risk Warning:
Trading leveraged financial products, including Contracts for Difference (CFDs), carries a high level of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors and should only be traded with funds you can afford to lose. You do not own or have any rights to the underlying assets of these derivatives (e.g., entitlement to dividends). Please ensure you fully understand the associated risks. Before trading, consider your level of experience, investment objectives, and seek independent financial advice if necessary. Refer to our legal documents and disclosures before making any trading decisions.

General Advice Warning:
The information provided on this website is general in nature and does not take into account your personal objectives, financial situation, or needs. Before acting on any advice, you should assess its appropriateness in light of your individual circumstances and consult our legal documentation.

Regional Restrictions:
The information and services on this website are not intended for residents of certain jurisdictions, including but not limited to the United States, United Kingdom, Singapore, Hong Kong and any jurisdictions subject to international sanctions. For further information, please contact our customer support team.

Regulatory Information:

Ultima Markets is a trading name shared amongst multiple entities operating in various jurisdictions. These following entities are authorised to operate under the Ultima Markets brand and trademarks.

  • Ultima Markets (Mauritius) Ltd is authorised and regulated by the Financial Services Commission (FSC) of Mauritius as a Full-Service Investment Dealer (excluding Underwriting), under licence number GB 23201593.

    Registered address: 2nd Floor, The Catalyst, 40 Silicon Avenue, Ebene Cybercity, 72201, Mauritius.

  • Ultima Markets EU OÜ is incorporated in Estonia with registry code 17134727. Registered address: Harju maakond, Tallinn, Kristiine linnaosa, Seebi tn 1-1501, 11316. Ultima Markets EU OÜ facilitates services on behalf of other licensed entities within the Ultima Markets Group, including, but not limited to, payment services. This entity does not offer regulated financial products or provide trading services.

  • Ultima Markets (Pty) Ltd is a licensed Financial Services Provider (FSP No. 52497) authorised and regulated by the Financial Sector Conduct Authority ("FSCA") of South Africa. Ultima Markets (Pty) Ltd is neither the issuer nor the market maker of the derivative products made available through the FSP. It acts solely as an intermediary, as contemplated in the Financial Advisory and Intermediary Services Act, 2002 ("FAIS Act"), between clients and Ultima Markets (Mauritius) Ltd (the "Product Provider"). Its services are limited to the provision of intermediary services in relation to derivative products issued by the Product Provider. Accordingly, Ultima Markets (Pty) Ltd does not act as principal, issuer, market maker, or counterparty in any client transaction. Registered Office: 9th Floor, Atrium on 5th, Sandhurst, Sandton, 2196.

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