The Forex Robots in 2024, just like any other online financial market, is governed by the orders that are issued by the trader. Orders are essentially directives that a trader sends to the broker and then the broker will set out to execute those orders.
They can be as simple as buy or sell, just like you would think. But they can also be much more complicated. One of the most popular orders in the forex market is called stop-loss, which is widely used in order to manage potential losses on all open positions.
According to this order, the broker is directed to close your open position automatically once it hits the threshold you have set for the position. The other side of a stop loss order would be a take profit order.
A take profit order acts in the same way, as it closes the position once it hits a threshold. But this threshold is for profits rather than losses. So in this way, when you gain a certain amount of profits, the position closes automatically to protect the profits obtained.
Given the serious nature of these orders, we want to dedicate this article to see how stop loss and take profit orders work and how you can manage them with the help of forex trading robots.
What Is a Stop Loss Order and How Does It Work?
As we discussed briefly in the intro, a stop loss order is one of many orders that are issued by the trader to the broker, indicating that a position must be closed automatically when the losses that the said position is sustaining surpasses a certain threshold, usually in terms of percentages, that was already set by the trader.
As a result, a stop loss order is one of the main pillars of risk management in any financial market, especially the forex market. The reason risk management ought to be taken seriously with a special hint of attention in the forex market is that this market is a bit more volatile than other markets. Although the fluctuations that occur in this market might be narrow in their scale, they are, nonetheless, frequent.
So you must know exactly to cope with this rather peculiar form of fluctuation that is frequently seen in the forex market. And as we mentioned already, using a stop loss is one of the best methods of combating such matters. Now let’s see how such an order works.
The way the stop loss order works is actually quite straightforward. When the trader wants to open a position, or when configuring a trading strategy or trading robot, they can choose a certain price level for the loss. This price level will act as the threshold that if and when hit, then the position will be closed.
Naturally, the placement of stop loss is also closely tied to the type of the position – i.e. whether it is a long or short position. If it is a short position, then the stop loss would be placed more than the entry price, and if the position is a long one, then the stop loss would naturally be placed lower than the entry price.
You should read: Passing the Challenge of Prop Trading with XauBot
Pros of Stop Loss Order
There are obvious pros when it comes to the proper setting of a stop loss order. First of all, as we discussed earlier, it is a great way for risk management. And remember a stop loss order does not prevent loss, but rather it will constraint it and prevent it from growing further. But nonetheless, any means for risk management ought to be used in the forex market.
Furthermore, a stop loss order is also a great way for managing your human emotions while trading and preventing them from affecting the outcome of the trade. Sometimes, if there are no brakes, you might keep going for any number of emotions, including both greed and even fear.
But stop loss can act as the necessary brakes for your positions in the market.
What Is a Take Profit Order and How Does It Work?
A rather similar order to the stop loss order is the take profit order. Unlike the stop loss order which is used to limit losses, the take profit order, as the name suggests, is used to lock in the profits that are gained through a position.
In this way the take profit order can also be considered as part of a money management order regiment. And the way it works is also rather similar to the stop loss.
Naturally, for a long position the take profit order would be higher than the current market price in order to ensure profits through the position. And for a short position, the take profit order is placed lower than the current price also to ensure profits.
For example, if you go long on EUR/USD which currently stands at 1.08 you can set your take profit order to be 1.09 so when the price of this trading pair reaches your specified threshold, the position will be closed to ensure you rake in the profits.
You should read: What Is Prop Trading and How Does It Work 2024?
Pros of Take Profit Order
As you might have guessed already, the take profit order can also be regarded as a means of risk management. But of course, at its heart, a take profit order is used to make sure that when your position goes into profit, it does not fall back into loss or a neutral position.
Indeed, this is something that happens all the time. While it is also possible that your position might further go into profit, the opposite, as we said, is always a probability.
So a take profit order will lock in the profits that have been accrued so far to make sure you won’t lose them.
Setting Stop Loss and Take Profit Order Using Forex Trading Bots
Both the stop loss and take profit orders are regarded as a form of automation to be placed upon your positions in the market. But you can take this automation to the next level with the help of forex trading robots.
One great example would be the XauBot Pro, which is an expert advisor developed to trade all trading pairs in the forex market. With the help of this automated trading tool you can set both take profit and stop loss orders initially when you are configuring the bot. In this way, you will not have to manually adjust this figure every time a new position is to be opened.
You define these figures initially when you have just installed the bot and it will take care of the rest.
You should read: Maximizing Profits with Automated Forex Trading Robots
Conclusion
Stop loss and take profits are two of the most popular orders in the forex market. Both are regarded to be means of risk management. The former is used to automatically close the position once it sustains a predefined level of loss. And the latter is used to close a position when it accrues a predetermined amount of profits. You can use trading automation solutions such as XauBot Pro to set stop loss and take profit orders with robots.
