Measures for trading loss limitation


Consistent loss limitation is essential for survival when trading CFDs. Due to the high leverage effect, a total loss will occur sooner or later without measures to limit losses.

Find a CFD broker with a guaranteed stop loss

CFDs in metatrader 4 exness work with leverage. Which CFD brokers are particularly safe thanks to measures such as the exclusion of a margin call or guaranteed stop-loss orders,

How are losses limited in CFD trading?

The most important rule: Every (!) position must be linked to a stop loss order. If the market does not develop as hoped, the stop loss order leads to the automatic activation of a close-out order when a previously determined price level is reached.

An example: A CFD on a share is quoted at € 77.50. A long position is opened. A long position is opened. This is equipped with a stop loss at € 77.

If the share price falls once to € 77, an unlimited sell order is irrevocably triggered. Provided there is sufficient liquidity in the market, the position is closed out at least near this level.


Loss limitation: How much can be lost on a position?

The stop loss order also determines how high the maximum loss in the open position may be.

The leverage effect must be taken into account: If trading with a tenfold leverage, a stop loss 1.0% below the current market price leads to a loss of 10% of the equity invested in the position.

A case study: A share is quoted at 100 €, the initial margin is 10 €. A long position opened at a price of 100 € is closed out at 99 € by a stop loss order.

However, the trader's self-initiated loss limitation is much stricter than the close-out levels of the brokers. For most brokers, these are in the range of 20-50 % of the initial margin. In the above example, 50-80% of the invested capital would be lost.

Maximum loss per day and week

As a rule of thumb, the maximum loss accepted for a position should not exceed 0.5 % of the total account balance. Finally, even longer series of losses, e.g. 20 transactions in a row, should not lead to a drastic reduction of equity.

It is worth remembering the recovery effect: if the account balance is halved by losses, it must then be doubled in order to restore the original state.

Whether an additional limitation of daily and weekly losses can be useful is controversial. Mental aspects are the main arguments in favour of such a temporal loss limitation: Heavy losses within a short period of time lead to mental stress, which is often followed by wrong decisions.

Assuming a sufficiently validated trading strategy with effective filters, however, there is otherwise no compelling reason to set specific maximum losses for time intervals. If, for example, a particular strategy is proven to generate many more losses in volatile market phases, an increase in volatility should serve as a filter.

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