eToro Stop Loss function

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.

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 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.

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.

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.

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!