eToro Stop Loss

Written by Mike Druttman

Fact checked by Nick Zelver

Updated Nov, 2024

Intro

The Stop Loss feature on eToro is a crucial instrument for traders, designed to mitigate losses in unfavorable market conditions. To ensure you can effectively utilize this tool, I have thoroughly examined its functionalities and risk management aspects. This guide is crafted to enhance your understanding of how the Stop Loss (SL) feature operates and how you can leverage it to optimize your trading strategy.

Quick 101: What is the Stop Loss Tool?

The Stop Loss tool or SL is a fundamental risk management strategy, that enables you, the trader, to establish a specific price point at which a trade will be automatically terminated to curtail potential losses.

This automated order is a safeguard that activates when the market price hits the defined level. eToro incorporates the Stop Loss feature across its platform, making it available for a wide array of tradable assets, including stocks, currencies, and cryptocurrencies.

Functionality of the SL Feature

Upon initiating a trade on the platform, you'll already have the opportunity to set a Stop Loss order. This involves specifying a price at which the trade should automatically close.

For instance:

If you purchase a stock at $100, you might place a Stop Loss order at $95. Should the stock's price fall to $95, the trade will automatically close, thereby limiting your loss to $5 per share.

It's crucial to understand that a Stop Loss order comes into effect only when the market price reaches the predetermined level. If the asset's price never hits your Stop Loss threshold, the trade will continue to be active until you decide to close it manually.

My Tips for Using SL on eToro

After extensive experimentation with the Stop Loss (SL) order on eToro, I've gathered several insights and tips to help you make the most of this tool:

• Consistently Apply Stop Loss Orders: These orders are vital for managing risk and should be a standard part of your eToro trading strategy. Setting a Stop Loss order each time you open a trade is a prudent practice.
• Align SL Levels with Your Risk Appetite: Your Stop Loss setting should reflect your personal risk tolerance. If you're a conservative trader, then you might prefer setting the SL closer to the entry price, but if you're the more aggressive type, then you'd probably opt for a wider gap.
• Account for Asset Volatility: The inherent volatility of the asset you're trading should influence your SL level. For highly volatile assets, a broader  margin may be necessary to accommodate significant price fluctuations. Conversely, less volatile assets might warrant a narrower SL setting.
• Actively Monitor Your Trades: I can't emphasize enough that SL orders are not a completely hands-off approach. It's important to keep an eye on your trades and adjust your settings as market conditions evolve.
• Employ Guaranteed Stop Loss Orders for High-Risk Situations: In scenarios involving highly volatile assets or during tumultuous market events, consider using a Guaranteed Stop Loss order. This ensures that your trade closes at your specified price, regardless of any abrupt market changes.

Types of SL Orders Available

The platform will give you thee choice of three distinct types of Stop Loss orders, each catering to different trading strategies and risk management needs: Basic, Guaranteed, and Trailing Stop.

1. Basic Stop Loss: This is the standard form of Stop Loss order used by most traders. It's a non-guaranteed order that activates when the market hits your specified price level. However, it's important to note that in cases of rapid market movements or gaps, the execution might occur at a different price, leading to potential variances in loss levels.
2. Guaranteed Stop Loss: As the name suggests, this order type guarantees execution at the set price level, irrespective of market volatility or gaps. This added assurance comes with a cost; an additional fee is charged for using a Guaranteed Stop Loss order. The fee amount varies depending on the traded asset.
3. Trailing Stop: This dynamic option allows the Stop Loss level to adjust automatically in line with the asset's price movements. For instance, if you set a Trailing Stop at $95 with a $5 distance, and the asset price rises to $110, the Stop Loss will adjust to $105. This means if the price then falls to $105, the trade closes automatically. The Trailing Stop is particularly useful in securing profits while still allowing room for potential growth.

Each of these SL orders offers unique benefits and can be strategically used depending on your trading goals and risk management preferences on eToro's platform.

Difference with Take Profit

Stop Loss and Take Profit are two crucial tools that you can use to manage you trades on eToro. Stop Loss and Take Profit are not guaranteed and trading with leverage involves high risk.

• As mentioned earlier and to reiterate, Stop Loss is like an emergency exit that you can set to minimize the losses. It automatically closes the trade when the asset's price reaches a specific level that you set. Basically, it's used to protect you from losing too much money in case the market goes against your trade.
• Take Profit, on the other hand, is like a goal that you set to lock in the profits. In this case, it automatically closes the trade when the asset's price reaches a specific level that has been set. This ensures that you won't miss out on the possible profits if the market turns into your favor.

⚠️ I can't emphasize this enough...

Using SL and TP together can help you manage your risk and create a trading plan that fits your style and preferences. However, it's important to remember that these tools DO NOT guarantee that your desired price level will be executed.

Also keep in mind that they only trigger the order to be executed if the asset's price reaches the specified level. So, it's essential to set realistic Stop Loss and Take Profit levels based on the asset's volatility and your risk tolerance.

Setting an SL Order on the Platform

Just like me, probably your first question is how do I set a Stop Loss order on eToro? This query is actually quite common and to answer that, the process is pretty simple.

After accessing the platform, select your desired asset and then initiate a trade. Then configure your order, set your Stop Loss level, decide on your your SL type, and then click “Submit” to finalize it.

After your order is active, you can keep track of it under the “Portfolio” tab in your account together with the SL parameters you just set.

Conclusion

As we conclude this guide, I'd like to share my personal insights on the importance of the Stop Loss (SL) feature in trading. Based on my experience, I can affirm that the SL tool is indispensable for every trader. It has been instrumental in mitigating potential losses that could have occurred without its use, thereby enabling effective risk management.

I strongly encourage you to incorporate Stop Loss orders into your trading strategy on eToro. This practice will not only bolster your confidence in trading but also significantly diminish the adverse effects of market volatility on your portfolio. Remember, smart trading is as much about managing risks as it is about seizing opportunities.

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