stop loss
stop loss definition. Explained for Australia forex traders. Plain-English, no jargon. Calculation example included.
A stop loss is a pre-set order to close a trade at a specified price to limit potential losses. It automatically exits a position when the market moves against you beyond a defined threshold. This order applies to both long and short positions but does not guarantee execution at the exact price during fast-moving markets or gaps.
FormulaSL distance (in pips) × pip value (in AUD) × lot size = maximum loss (in AUD)
Example
An Australian trader buys 1 standard lot (100,000 units) of EUR/AUD at 1.6000. They set a stop loss at 1.5900, a distance of 100 pips. The pip value for 1 standard lot of EUR/AUD is approximately 10 AUD. The maximum loss is 100 × 10 AUD × 1 = 1,000 AUD.
Edge cases
- JPY pairs: For pairs quoted in JPY (e.g., AUD/JPY), the pip value is calculated in JPY and then converted to AUD using the current AUD/JPY rate.
- ASIC regulation: Australian brokers under ASIC rules may enforce a minimum stop-loss distance for retail clients on certain volatile instruments.
- Non-standard lot sizes: For micro or mini lots (0.01 or 0.10), the pip value scales proportionally; always verify with your broker’s specifications.
See also
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