Trading with a STOP LOSS – Things to Keep Remembering to Manage and Minimize Risks

Stop Loss activities involve specific risks. Some of the risks involved are described below by way of example, but the description is not exhaustive. There may be other risks and when using Stop Loss functions, the Customer is always obliged to take the necessary measures to manage and minimize his own risks and to constantly monitor his situation.

A stop order or stop-loss order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order. A buy-stop order is entered at a stop price above the current market price. Investors generally use a buy-stop order to limit a loss or to protect a profit on a stock that they have sold short. A sell-stop order is entered at a stop price below the current market price. Investors generally use a sell-stop order to limit a loss or to protect a profit on a stock that they own.

When the stop price is reached, and the stop order becomes a market order, this means the trade will definitely be executed, but not necessarily at or near the stop price, particularly when the order is placed into a fast-moving market, or if there is insufficient liquidity available relative to the size of the order. The use of stop orders is much more frequent for stocks and futures that trade on an exchange than those that trade in the over-the-counter (OTC) market.

A buy or sell order made via Stop Loss functions will only be forwarded to the marketplace when the so-called target price set by the Customer has been reached. This means that the Client’s order and other orders made at a similar price are listed as arriving at the marketplace in this chronological order, even if the terms of the Client’s order have been defined earlier.

As is the case with orders submitted in other ways, there is no guarantee that Stop Loss orders will lead to a completed trade.

Execution of Orders

The execution of orders given through the Stop Loss functions depends on the target price set by the Client. In order to achieve the target price, the latest price of the security to which the order is placed is monitored on the marketplace. When using the Stop Loss functions, the customer must be aware that the price information provided by the marketplace may be incorrect in certain situations. For example, a transaction may take place outside the current bid and ask price. It is also possible that an incorrect last price will be marked on the security, which will later be canceled. The Client’s order may thus enter the marketplace on the basis of an incorrect latest price and be executed at a price that does not correspond to the actual market value of the security or the Client’s expectations.

Use of Stop Loss Functions Means

The use of Stop Loss functions means a very high level of risk-taking if the target is so-called illiquid shares. Securities with insufficient liquidity and low turnover can often have strong price movements with low or even zero turnover. As a result, the assignment may be completed at a rate that differs significantly from the previous ones. After this, the course can quickly return to even the previous level.

There may be prohibited exchange rate manipulation in the marketplace, which may result in the registration of a trade at a price different from previous levels. Such trades may also trigger the execution of the order.

The Fundamentals Could Change Anytime

Various changes may occur in the company listed on the marketplace and in the company’s share capital, which affect the prices. The company may increase its share capital, for example through a bonus issue or a new subscription, or reduce its share capital. Shares can also be divided or combined (so-called split and reverse split). Other corporate actions (so-called corporate actions) can also affect prices. Company transactions and subsequent changes in the price may result in the price reaching the target price set by the Customer before the company transaction and the assignment being fulfilled. The Client must be aware of the special risk associated with corporate transactions and the fact that the Client is always responsible for monitoring these types of events and taking the necessary actions, such as deleting or updating his Stop Loss order.

In the case of electronic services, various outages and disruptions may result in the Customer’s order not going to the marketplace, even if the target price has already been reached.

LIMITATION OF LIABILITY

Stop Loss functions are offered to the Client as a supplement to the trading services without a separate charge and as such. Use of these additional services is at the Customer’s own risk.

The company does not guarantee that an order made through Stop Loss operations will go to the marketplace or that it will lead to a completed trade. The Company also does not guarantee that the information provided in connection with Stop Loss operations will be accurate.

If the Company has exercised due diligence, the Company will not be liable for any damages or other consequences to the Customer or a third party due to errors or omissions in the Stop Loss operations or their availability or reliability. The Company shall not be liable for consequential damages (such as loss of profit or profit or loss of information) if the consequential damage was not caused by the Company’s gross negligence. In particular, the client must take into account the risks that the latest price information contains errors and that the prices do not correspond to the actual market value of the security in the marketplace, for example for the following reasons:

• An incorrect price has been registered for the security
• the security is subject to prohibited exchange rate manipulation.
• the transaction has taken place outside the current bid or ask price
• there is a strong exchange rate fluctuation in securities with insufficient liquidity and low turnover

Furthermore, the Client must pay particular attention to the possibility of corporate transactions and their effects on the price of the security (see Section 6 above for more details).