Financial spread trading can be a lucrative business and can earn you a great deal of money but you can also lose money unless you have a sensible risk management strategy in place and for financial spread trading this means using a stop loss.
Using a stop loss is of vital importance if you are going to be successful at financial spread trading. Accept that it is as important, for example, as using the indicators when driving your car. In simple terms, a stop loss is an insurance policy. You place a trade hoping that it will be a winner but by also placing a stop loss you know exactly how much you could lose if the trade goes against you and the stop loss is triggered. This is good risk management and vital to you financial spread trading success.
The use of a stop loss also helps a trader to obey, and effectively take the emotion out of, one of the golden rules of financial spread trading which is to cut your losses short and allow your profits to run. Always place a stop loss when you place your initial trade. That way, any emotion you might feel about cutting your losses short is taken away and done for you. This point brings up another golden rule, i.e. never move a stop loss against your position.
The stop loss can also be used to manage your trade when it enters winning territory. You simply move your stop loss as the trade develops. You can do this manually although most financial spread trading companies have a facility for you to trail a stop on their internet platforms.