How does stop loss work on eToro?
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Many investors lose their significant investments without adequately protecting their trades. 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 additional losses.
Stop Loss is a setting to close a trade at a specific rate or amount. Suppose the market reaches your required rate. And you have lost the predetermined amount. Stop Loss activates and automatically closes your position (order).
It protects your Investment and avoids the market falling too low.
How does stop-loss on eToro work?
Stop loss is optional. And you can set it on demand once your trade is open.
- On eToro, you can set your stop loss according to the amount of money (Amount) or the investment asset rate (Rate).
- Every order requires a stop-loss except for non-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 activates 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 shallow. Generally, the minimum Stop Loss amount 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 crypto traders losing up to 10% of the invested amount, the minimum Stop Loss amount is 10% of the initial invested amount. The formula is as follows:
Invested amount X -0.1 = Minimum SL
- For crypto traders losing more than 10% of the invested amount, the minimum Stop Loss amount is one pip from the current market rate.
That’s why you cannot set a stop loss that is too small when you open an order to trade in cryptocurrencies.
Maximum stop loss
The maximum Stop Loss allowed when you open a position is 50% of the position amount. Except for non-leveraged BUY orders, you can set a stop loss higher than 50%
This limit minimizes the risk to your 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 are investing $1,000 in a BUY Platinum position – that means you expect the Platinum price to increase in value.
Step 1: You 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, stop loss is set to 484.3 by price (Rate). So, if the price drops to 484.3, the Stop Loss order will trigger and automatically close the order (position).
You can also click the Amount button to view and set stop loss as the amount. In this example, the SL ratio is 484.3, equating to $500. If the trade loses $500, the Stop Loss order will automatically trigger and close the order (position).
Because this is a BUY order with no leverage, you have the option to click No SL
Step 3: Set other parameters of the order 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: You click on the relevant trade order in your Portfolio to open the Edit Trade window.
Step 2: Click on Stop Loss. If there is currently no stop loss and you want to add. Click on Set Stop Loss.
Step 3: Adjust your Stop Loss settings.
Step 4: Click Update to save the changes.
Some frequently asked questions
Why am I charged for editing the Stop Loss of my open order?
If you adjust your Stop Loss beyond the maximum Allowable Stop Loss while an order is open, eToro debit your 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 get your money back to your available balance, reduce your Stop Loss.
If the position ends in profit, the funds debited be returned to the available balance, along with the amount initially invested and the profit.
Debited funds are lost only if the position closes with a loss that exceeds the original Maximum Stop Loss.
Can I adjust positive stop loss?
That’s the Profit Lock – how to use your stop-loss order to secure a profit.
However, remember that on eToro, only when the order is already profitable can you adjust the Stop Loss to be 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 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 double-guess yourself and convert your stop-loss back to a negative number.
- If the trend continues in your direction, keep moving your stop loss to a more significant positive number (Manual Tracking Stop Loss)
- If the trend continues to move in the correct order, that also impacts your “take profit” for you to take in other potential profits.
My order was closed by stop-loss due to the eToro crash. Will I be compensated?
Surely you are compensated. eToro has experienced such an incident. And eToro has automatically reimbursed investors. Suppose you happen to be in the above situation and have no automatic refund. Please get in touch with customer support immediately to get it resolved.
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 need to manage your Portfolio manually. You can specify your stop loss and enter orders into the market. And you let it work.
Indeed, there are potential limitations to a stop-loss order. So we recommend that you try trading on eToro’s demo account.
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