Toro Demo Trading

Platform How To

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RISK WARNING: 67% of retail investor accounts lose money when trading CFDs.

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eToro Stop Loss function

What is Stop-Loss?

Stop Loss is a useful tool for risk management available on the eToro platform that allows you to restrict the amount of losses on an open position. It helps to prevent losses above the chosen amount when the price movement is against you by automatically closing the trade. Once used properly this option can offer great benefits in trading.

(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings.  In fact, Around 67% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)

Why use Stop Loss?
Apart from limiting the losses on your positions, the stop loss tool can save a great deal of time by taking away the necessity of constantly monitoring your open trades, even more so if you have many open.

eToro Stop Loss

Stop Loss in trading
eToro allows you to decide on the cut-off point for stop loss on the positions you are trading on the chosen asset, as shown on the image below using an example of the Amazon stock. Stop loss can be chosen as a monetary amount, but you can also see the proportion in percentage, which the stop-loss amount represents in the total value of your investment into a position.
Stop-Loss Etoro

Once the market moves against your favor in a trade, an automatic instruction to close it is sent. For example, if 1 share is purchased at 500$ with a stop loss of 400$ and the price falls to 399.99$ an automatic instruction is triggered and the stock is sold. 

The maximum value of stop loss on the platform is 50% of the amount invested into a position, unless it is a long position with no leverage. These restrictions are implemented to limit the capital loss risks in case market suddenly starts to move unfavorably.

Once a trade is open however, these limits can be surpassed and your balance on the account will be debited, given there are sufficient funds available to keep the Maintenance Margin at the permitted level.

Trailing Stop Loss
Trailing Stop loss (TSL) is an additional feature available on the platform which is more flexible than the traditional Stop-Loss function and was introduced as a response to the feedback of users. Using this feature allows you to set the stop loss amount at a fixed amount of PiPs around the market price level i.e. above or below it, depending on whether your position is long (Buy) or short (Sell). This means that the stop loss amount will adjust proportionally with the market moving into a favorable direction. The stop loss will increase proportionally as the market rises and the distance between the price at the time and the price allowed by the stop loss value is fixed. However, if the market changes are against you, the value of the stop losses will not adjust and hence the position will be closed when the maximum loss amount is reached.
Trailing Stop Loss
If you have a long (buy) position in an asset, the value of Trailing Stop Loss will increase with price increases in PiP proportion, and when the position is short (buy) it will decrease accordingly.
So for example, you purchase a stock for 500$ and set the TSL at 400$, the market moves favorably and the price increases to 520$ the stop loss moves up to 420$ accordingly. The Stop Loss instruction will trigger the automatic sale when the price falls below 419.99$.
Trailing Stop Loss can be likewise activated when opening a trading position and ticking the “TSL” box; the TSL is adjusted accordingly every time you make a change to the value of your Stop Loss.
Disclaimer
Stop Loss offers many benefits, however, the potential disadvantage may happen if short-term fluctuations in the price of traded assets may trigger the closure of a position and cause a sale, which may not necessarily be needed if you are looking for a longer-term investment.
Do not forget the associated risk of losing your demo balance and enjoy trading!

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eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Past performance is not an indication of future results.

eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.

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