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If you want to place a stop-loss order on a long position, where would you place the stop-loss?
Explanation
A stop-loss automatically closes a position if the market moves against you. So on a long position, it would need to be set below the current market level.
Your analysis shows that if a rising market hits a certain level, it will continue to rise. If this happens, you want to open a long trade. Which type of order would you use to speculate on a market trend like this?
Explanation
You’d use a stop-entry to open the trade at a higher price than the current market price,whereas a limit-entry lets you open a trade at a lower price. So in this scenario,you’re setting a stop-entry order.
What’s considered the ideal percentage of account capital that should be risked on a single trade?
Explanation
Bearing in mind that spread betting and CFD trading are leveraged, many professional traders make a rule of never risking more than 1% per trade.
What is slippage?
Explanation
Slippage is when your order is filled at a different price to the one you requested due to a volatile market. When your order is filled at a worse level, this is called ‘negative slippage’. You can protect against negative slippage with aguaranteed stop, which will incur a small premium if triggered.You can also receive positive slippage, where your limit order is filled at a better price than you requested due to high volatility.
What kind of stop can you use to lock in profit?
Explanation
You can use any type of stop to lock in a profit. Trailing stops automatically adjust themselves as a market moves in your favour. You can also do this with guaranteed and normal stops by manually moving them as your trade becomes more and more profitable.
You open a trade and set a stop 50 points away from your entry level, and a limit 200 points away. What risk-to-reward ratio are you using?
Explanation
Your limit is four times further away from your entry level than your stop, giving you arisk-to-reward ratio of 1:4.
Which type of order would you use to take some control over the profit you make?
Explanation
Limit-close orders let you specify the level at which an open trade should be closed out.If you’re long on a market then this would be above the current market level, and if you’re short, below.
If you wanted to trade with a risk to reward ratio of 1:2 and you set your stop 130 points away from your entry price, where would you set your limit?
Explanation
To get a risk to reward ratio of 1:2 you need to set your limit order twice as far away from your entry level as you set your stop order.
When is the ideal time to set a stop and/or a limit?
Explanation
The ideal time to plan your entry and exit levels is when you open a new trade. If you set your risk threshold as soon as you open the trade you’re more likely tostick to it.
Using stops and limits can help you remove what from your trading? (Select all that apply)
Explanation
Setting stops and limits on your trades means you don’t need to make difficult decisions under pressure. Plus, once they’re set, you won’t have to keep an eyeon the market as your orders will manage the trade for you.
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