Stop loss and rules for deposit management

A stop loss is an order to the broker to sell an asset when it reaches a certain price. It is designed to limit the investor's/trader's losses. Although most investors, when talking about a stop loss, mean a long position, it can also be used to protect a short position - in this case, the asset, on the contrary, is purchased when its value rises to a certain level.

Stop losses are very important. Let's look at a few options for their use:

1. To save your money. In this case, we prevent the loss of our initial investment by automatically liquidating the position as soon as the value falls to the purchase price (or slightly higher, if we take commissions into account).

2. Not to get from a bad situation to a worse one. Here we are talking about limiting losses - you choose a level that is comfortable for you, and thus you get some room for maneuver in the expectation that the asset will grow back in value.

Basic principles of effective deposit management:

1. An amount of money should be allocated for trading that is not too bad to lose. It should not make a gap in the budget. Usually it is about 10% of monthly earnings;

2. Borrowed funds are forbidden. Always trade only on their own capital;

3. Emotions will affect trading. Your task is to learn to control them;

4. At the initial stage it is better to exclude margin trading. Work on the spot market. You can switch to working with leverage at any time.

5. Leverage itself is safe. But there is a temptation to enter the market with a large volume. A beginner may not be able to cope with the temptation.