Risk Management Tools
When you use leverage to buy or sell you may be exposed to a large risk (and you may also be exposed to a large profit!). In other words, the use of leverage will amplify the risk you are taking as you will be exposed to larger potential losses, but at the same time it amplifies the amount of potential profits in case the markets move in your favour.
Stop Loss
To control your total risk you can use a stop loss order, this tool helps you avoid any major losses that could even wipe out your account balance in case the market moves dramatically in the opposite direction than the one you speculated. This order automatically closes your trade at a certain price on reaching a certain amount of loss. When the trade is closed you are not exposed to losing more money. For example, if you buy gold at $1200 per ounce because you expect the price to rise and, at the same time, place a stop loss order at $1100. If gold price subsequently falls your trade will be closed at $1100 and your loss is limited from that point. It is wise to access and manage your risk for every trade you place. easyMarkets makes it easy to apply a stop loss rate to all your deals to ensure you only risk the amount of funds you are willing to.
Capturing profit
A take profit order closes a trade at a certain price level to lock-in profit. You decide where to place the take profit order depending on your target price. For example, you buy EUR/USD at 1.3500 and you expect it to rise to 1.3600, you can place a take profit order to automatically close the trade at 1.3600 and lock-in profit at that point. You cannot make more money once the trade is closed and the final profit is credited to your trading account. easyMarkets gives you the choice of placing take profit rates on your trades allowing you to walk away from your computer knowing you’ve locked-in potential profits.
Let’s move on to get an introduction to vanilla options.
