subject: Stop Loss Market Or Stop Loss Limit In Futures Trading [print this page] A Stop loss order is basically a form of exit order used to limit the loss in a trade. These orders are expected to hugely benefit day traders in futures trading.
Stop loss orders are used only to exit trades and not for entry. These orders limit the loss amount, if any adverse price movements. For ex: If you hold a long position in anticipation of rise in prices, you can protect your money with stop loss order in case of fall in prices.
Based on the order types, stop loss orders can be classified as stop loss market orders and stop loss limit orders.
Stop Loss Market Orders: These orders have stop market order as its underlying order type. A stop order is placed at a specified price and when the market touches the price, the stop market order is activated and executed as a normal market order. Traders determined to exit can use these orders, as market orders are usually filled however with a possibility of variation in the price expected.
Stop Loss Limit Orders: These stop loss orders use stop limit order as its underlying order type. When the market reaches the specified price, stop loss orders will be executed as a regular limit order. You must be aware of the probability of your order not being filled and you may not exit if the price does not reach the specific level.
As stop loss orders are specifically used to exit trades, usually a stop loss market order is recommended to exit and limit your losses. Though, odds of exiting at an alternative price are high, you can avoid the risk of huge losses which may arise if not exited. However, a stop loss limit order can also be beneficial in case you are not making an emergency stop loss.
You can choose between discretionary and system trading methods to place stop loss orders. Discretionary trading method requires you to study market dynamics and place your stop loss order at a specific price at which you don't foresee the market trading at. A System trading method incorporates many statistical and mathematical tools to arrive at the stop loss order price.
Choose an appropriate stop loss order and make the right moves in futures trading.
