Stop Losses: Help or Hindrance?

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Stop Loss tools within a trading app, how much use are they? In this week’s article Caan shares his view…

“Stop losses are meant to do exactly that. Stop losses. They are pre-defined trades that will close a position if the price moves a certain distance away.”

Stop losses are one of the first things people learn about when they get into any kind of trading. A lot of new traders assume they are an essential piece of kit, vital to success in the markets.

But honestly, that’s not always the right answer.

So, what’s all the fuss about? Are they a must-have or not worth the hassle?

Stop What?

Stop losses are meant to do exactly that. Stop losses. They are pre-defined trades that will close a position if the price moves a certain distance away. Let’s look at an example below:

I’ve backed the horse “Dashing Poet” at odds of 6.0. My plan is to trade out when for a profit when the price comes down to 4.0. Should the price go against me in this case, rise, I have placed a stop loss at odds of 7.0.

In the example above, the stop loss will trigger if the price reaches 7.0. This will result in a small loss. The idea is that it’s better to have a small loss than a much larger one.

Sounds good, right?

Well, it doesn’t always work out that great, for reasons I’ll now explain.

It’s worth noting, you won’t be able to setup a stop loss using the Betfair website alone. You’ll need to get hold of third party software such as Geeks Toy that has a stop loss function built into it.

Hindrance

Sports markets are relatively short term markets. poker domino The market activity picks up around the time of the event. There’s usually a hive of activity right at the start and while the event takes place. Once the event is finished, the markets are closed. Gone forever.

This is very different to other types of markets, such as FX markets. For as long as certain currencies exist, the markets will be traded every week of the year. They are longer term markets where traders can hold positions for years, should they want to.

Betfair Exchange sports markets are very different. If you’re going to trade pre-race at Royal Ascot for example, prices can half in a matter of minutes. If we’re talking in-play, it’s absolutely possible for a horse to trade at the lowest possible point 1.01 and then at the highest 1000.0 within seconds. It’s not usually that extreme but it can happen under the right conditions.

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