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Risk Involved in Forex Trading Market Without Stop Loss Order

Sep 15, 2008
In forex trading, stop loss order is one of the most potent tools that you as a trader can use in case the market trend takes a turn, thereby moving against you. Here it is important to note that even though 'stop loss order' is so important, still a large number of forex traders tend to ignore it.

Before discussing further, let us first attempt to understand the relevance of 'stop loss order'. It is basically a market order that prevents forex traders from incurring enormous amount of losses in case of unfavorable circumstances. This in itself explains the reason why this market order is called 'stop loss order'. It is meant to safeguard the interest of the traders.

To trade in forex market, you have to think from your mind; not from your heart. But, unfortunately, humans are highly emotional and it is these emotions that many a times prevents them from putting a stop and closing the deal. Forex market is governed by a trading pattern that you need to understand as well as follow. To be successful, you need to do a technical analysis of the foreign currency exchange market.

The psychology of most of the forex traders is that it is better to wait and watch because you never know when things might turn in your favor. They believe it so much that they keep sitting even when things turn worst but do not place the stop loss order to minimize further losses! They keep on following their instincts that everything is going smooth and as time passes by, the situation will be better. They feel if they use stop loss order, they will have to automatically move out of the market. In such a case, they won't even get a chance to try their luck again in the forex market. Quite amazing!

There can be times when there is nothing to gain on the trading floor but despite that if you do not place your stop loss order, it is likely that you might suffer heavy losses. At the end of the day, you will walk out of the trading room realizing that you don't have substantial amount to trade again. Some people get traumatized due to the aftermaths of poor trade deal. After having bearing such a shockingly high loss, you tend to hold onto your position in the hope of recovering some amount. At a later stage, the time comes when the forex trader does not have any option but to withdraw. He/she feels that now there is no other alternative because otherwise his/her family would have to live hand to mouth. It is here that stop loss order comes to the rescue of forex traders.

If you accept profits in forex trade; you must agree with the losses also; which is obvious in any trade you indulge. Profits and losses go hand in hand. When losses are almost inevitable, it is better to improve your position in the market and prepare yourself for the tough time. Though, you cannot completely keep away from losses, but, you can definitely strive to minimize them to a considerable extent with the help of 'stop loss order'.
About the Author
ForexFace contains extensive resources for the new Forex Trader such as a wide and easy to understand glossary, articles from A to Z to give you the better base to start your Forex Trading career. Learn forex trading at http://www.forexface.com
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