What are Profit and Loss Limits and Why Do I Need Them?


If you’ve already discussed the basics of online trading with your online broker, they should have told you about profit and loss limits. These limits are of vital importance once you start making live trades with real money.

Online trading is not an instant thing. You don’t typically make a single trade and get a set result right away. Your money will essentially be invested in that trade for a certain period of time. During that time, your balance can go both up and/or down.

Profit and loss limits play a vital role in this process. Read on to learn what they mean and why they are so important!

Before that, visit https://www.roshi.sg/online-stock-trading-platforms/ for more information.

What Exactly are Profit and Loss Limits?

A profit and loss limit affects how and when your trade ends. You can’t be present to observe how your trade is going 24/7. These limits help you monitor your trade without actively viewing it.

For example, say you’ve made a trade using $50. You may set your profit limit to $65 and your loss limit to $35. If your trade causes you to make $65, the trade will automatically end, and you will receive the $15 profit and your original $50.

On the other hand, if your trade results in losses that bring you down to $35, your trade will automatically end, and you will receive only $35 back.

Why Should You Always Use the Profit and Loss Limits?

Without profit and loss limits, anything could happen to your trade while you were away. You could make double what you invested and then lose it while you weren’t looking. An even worse possibility is that you could lose your entire investment, causing your trade to end with absolutely no returns at all!

The profit and loss limits help you keep your trade within the confines of what you can afford to lose. Make sure to set your loss limit at the level you will need to have at least some spare money to handle in other trades. (Not that you should be spending most of your account holdings on a single trade anyway!)

If you’re still unsure how the profit and loss limits work, discuss it with your online broker. They should have a good explanation for you and be able to help you try it out in a demo account.

Learn how to buy bitcoin in Singapore, good luck and happy trading!