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How a stop loss actually works...


Sammy_123

Question

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.

Thanks

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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

K.

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