Stop-loss
Definition
A stop-loss is a preset loss threshold at which trading stops without emotions getting a vote. In Forex and CFDs it is an order that closes a trade at a price. In binary options a trade cannot be closed early, so the stop-loss is set not on price but on money: a session loss limit in auto trading, a daily loss limit, a cap on the number of progression steps.
Two meanings of one word
In Forex and CFDs a stop-loss is an order: price reached a set level, the broker closed the position, the loss is fixed. In binary options there is no such order and there cannot be: a trade closes automatically at expiration, and there is no way to exit it early. The loss on one trade is already capped by its amount, so here a "stop" means a money threshold after which trading stops.
| Forex and CFDs | Binary options | |
|---|---|---|
| What it limits | the loss on one position | the loss over a series, a session or a day |
| Where it is set | a price, points from the entry | an amount in the account currency or a percentage of the deposit |
| Who executes it | the broker, by order | the terminal or the bot, by stopping new trades |
| Maximum loss per trade | depends on the stop and slippage | always equal to the trade amount |
| Typical mistake | the stop is too close and gets knocked out by noise | the stop is smaller than the progression series |
Why a price stop is not needed in binary options
The trade amount already is the maximum loss on it; there is no "even worse" inside one trade. The real danger is not one trade but a run: losses in a row, a larger amount after them, a progression that reached its last step. That is what a money-based stop-loss protects against, and shortening the expiration in the hope of "getting out faster" is pointless: the payout does not depend on the expiration time, and the loss is equal to the trade amount in any case.
Three levels of a money-based stop-loss
| Level | What it counts | Reference |
|---|---|---|
| Series | the step cap of martingale or another progression | 4–6 steps, the series amount is known in advance |
| Session | the accumulated loss since the bot was started or the terminal opened | equal to one series amount or more |
| Day | the sum of all losses for the day, see daily loss limit | 5–6% of the deposit with a fixed amount |
These levels are reconciled from the top down. If a progression is on, the session stop must hold the whole series, otherwise it fires at the fifth step of six, when the losses are already taken and the recovery trade is forbidden. In the video about the Regime Switch bot a session was lost exactly this way: a $3,500 stop-loss stopped a six-step series at the fifth step with a result of −$3,511, and the sixth candle would have closed as a win. There are two ways out: raise the stop above the series amount and limit yourself to one series per day, or reduce the first trade so the series fits into the daily limit.
In the terminal
In BinoView Supercharts the stop-loss exists in both modes. In the trade manager for manual trading the session stop is set as a percentage of the deposit and shown in money right away, next to the target and the session timer. In the auto trading window, on the limits tab, the stop-loss is set in the account currency: once the threshold is reached, the bot stops and opens no new trades. The same tab shows the maximum risk of a series at the chosen multiplier and number of steps, and that is the figure the stop is checked against. In sessions on six martingale steps the authors of the videos often leave the stop-loss off: the step cap already limits the series, and a stop below the series amount only does harm.
How it differs from a daily limit and a take-profit
A daily loss limit is a special case of a money-based stop-loss stretched over a day: it catches several losing series in a row that a single session stop lets through in parts. A take-profit is the mirror threshold on profit: the target is reached, you stop before the market takes the result back. A hard streak stop counts not money but losses in a row, usually two or three, and fires earliest of all. They work together, and the full set of rules is collected in the articles on risk management and money management.
Frequently asked questions
Is there a stop-loss in binary options?
Not on price: a trade closes only at expiration, and nothing can be done to it after entry. The loss on a single trade is capped by the trade amount itself. A stop-loss in binary options is a cap on money: how much can be lost over a series, a session or a day, after which trading stops.
How large should the session stop-loss in auto trading be?
No smaller than the amount of the whole series if a progression is on: six steps at a 2.2 multiplier equal roughly 94 first trades. A stop below that amount fires at the second-to-last step, when the losses are already taken but the recovery trade is forbidden. With a fixed amount the reference is 5–6% of the deposit per day, that is three or four losses in a row.
Can a short expiration replace a stop-loss?
No. A short expiration does not make the trade cheaper: the loss is always equal to the trade amount, and the payout does not depend on the expiration time. Only the trade size and a money-based stop threshold can limit losses, while the expiration is chosen to fit the signal, not the risk.