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How a stop loss actually works...



I'm just interested in how a stop loss works with a trade...

Is it
1. That when a stop loss is setup on a position, then a corresponding (opposite) trade is placed on the market. For example, if I take a long position, then when I configure my stop loss and make the trade, a corresponding short trade is placed into the market.

2. When I take a position, IG markets monitors the price of the instrument and when the price moves too far in the wrong direction an order will be placed to close my position.

3. Something else.


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I think there are differences in SL operations on different accounts.but I'll try to answer regardless:

I'm not an expert here but I'd lean towards (1) however - technicaly it's not a 'short' transaction because you are not borrowing any stocks - IG is just placing a 'sell/stop' order with the stop-loss price - but the price is not guaranteed because it's up to the market to hit your price level

when the order is placed? - this it a technical question for IG and I'm not sure if they are willing to share this information

and bear in mind (pun) that there are few types of stop loss - normal, guaranteed, trailing - so there is more intricacies

this: https://www.investopedia.com/terms/s/stoporder.asp can be helpful


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