The stop-loss order is a way for traders to limit the losses they incur when trading. It works by selecting a minimum price called the stop-loss limit. If the market price moves in a losing way and hits the limit, the market position gets automatically closed, the trading software automatically liquidates the security, and the trader incurs some losses.

It helps traders avoid some surprises when the market suddenly moves in an unfavorable direction, or at times when the broker does not have access to the trading platform for whatever reason. 

It is a risk management method used by many traders. However, some traders arguably do not use the stop-loss order while trading in Forex; they see that it limits the losses as well as the potential profits.

In volatile markets where the prices move up and down and at a fast pace, it is possible for the price to drop below the already set stop-loss limit, before rising up again. 

However, this price movement will trigger the stop-loss order and the trader’s market position will be automatically closed before they get to realize any upward trend. This means that the stop-loss order does not work in the trader’s favor.

Trading in Forex with no stop-loss strategy requires knowledge and analytical skills of the market. A trader needs to conduct deep research about different currency pairs, and analyze their potential before they can risk not using a stop-loss order.

Performing technical and fundamental analysis can be tiring and time-consuming. However, some traders prefer this way of trading without using the stop-loss order in Forex for the following reasons:

Missing out on gaining opportunities

As we explained earlier, volatile markets can see some wide price movements, and it is possible for the market price to drop heavily before picking up an upward trend. 

Using the stop-loss order, if the market price hits the minimum price limit set by the trader, the market position will be prematurely closed automatically, and the trader will lose the potential to maximize their gains if the price rises again. This way, the stop-loss is useful only for limiting the losses, but not really practical for winning potentials.

Overreliance is bad

When a trader uses the stop-loss order with every market position, they get used to having their backs covered, which is not ideally good for traders. Relying on this tool can affect the trader’s analytical skills since they do not follow market declines, and they might fail to read correct downward market trends.

Experienced traders avoid stop-loss orders while trading. They prefer to get their hands on every trading activity in order to have ultimate control over their options. Experienced traders might use this tool occasionally when they anticipate being far from the trading software for any reason.

Possibility of dealing desk to trade against you

No matter how reliable your broker is, you need to remember that a dealing desk takes the other side of the trade. Basically, as a market maker, your broker benefits when your trade is losing.

So, when you place a stop-loss order using your broker, you are telling your broker what the maximum loss is that you can tolerate, and there is a small chance that the broker will trade against you, and even re-quote or change the spread to maximize your loss and their gains.

However, a single broker is not likely to change the market prices, but in some trading accounts when the broker has control over the spread, you might expect the broker to amplify your loss.

Does not accommodate volatile markets

Exotic currency pairs are characterized by being highly volatile, or even some major currency pairs like the AUD/JPY. If you are opening a market position in any of these pairs, and you use a stop-loss order, your trade might be liquidated and closed very soon because the market moves at a high volatility rate.

Traders who take risky positions in exotic pairs don’t use the stop-loss option while trading, because it works against the idea of trading in less-common pairs where traders rely on volatility to maximize their gains.

Is not guaranteed to sell at the specified price, in case of huge meltdowns/no liquidity

Even if you place the stop-loss limit at a clear and specific price, on some occasions you may expect the market position to be closed at a different price, which makes the stop-loss order not very useful to save you in declining markets.

In dramatic economic meltdowns when the market deteriorates at a fast pace, there are millions of traders that are losing and selling their positions, and there is a chance for slippage to happen and for your trade to be closed at a different price than your set stop-loss price.

Additionally, trading in the Forex market on less common pairs, like exotic ones, where there is not enough liquidity to execute your orders instantly, your sell order might be concluded a few seconds later, and therefore a few pips away from the price that you set.

To better understand why some traders prefer trading forex without a stop-loss, let’s take a look at the below chart of the pair AUD/JPY, in September 2021.

The market price dipped and climbed significantly on 21 September 2021. Traders who had long positions on AUD/JPY, woke up to see the market price was going down from almost 79.7 AUD, down to 78.89 AUD, which is quite a significant drop of almost one Australian dollar.

If a trader entered the market that day at 79.40 AUD and set the stop-loss limit at 79.00 AUD, the trader’s position would have automatically closed by the afternoon because the price dropped to 78.893 AUD, which is below the stop-loss price.

In this case, the trader missed the rebound that took place by the end of the day. Even worse, the trader missed the price climb on the next day when the market price closed at 79.80.

However, if the trader did not use a stop-loss order, they would have absorbed the decline before picking up a steady upwards trend, that kept growing for the next few days.

After discussing the downside of using the stop-loss order, let’s discuss how you can trade Forex without a stop-loss strategy, and only using your knowledge and analytics skills. 

Bear in mind that thorough research and analysis are required to understand the historical movement of the currency pair that you are planning to trade with. There are several indicators that help you draw some images of the projected price movement, such as moving averages or stochastic oscillator indicators.

Trading Forex without stop-loss does not mean that you need to be glued to your trading screen. You can open more than one market position to diversify your risk. 

Some traders open more than one market position in two or more currency pairs to offset any loss that might be incurred from a single market position. Alternatively, you can follow one of these Forex trading strategies without using a stop-loss order.

"The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short." - Victor Sperandeo

Hedging strategy

You can secure your trading position by opening another opposing market position on the same security, using the same lot size, so that if one trade is losing the other is gaining.

However, you may ask what is the benefit here if the gains of one position are offset by the loss of another position. Well, there are two things to consider here. 

Firstly, this no-stop-loss strategy entails opening one long-term position, while the other is a short-term position that is opened before an expected event or a report that might damage the long-term market position.

The other consideration is that you can open multiple market positions in several currencies. Ideally, traders who do not use stop-loss orders in Forex trading create a basket of market positions in 2 or 3 currencies, on both ends of the market, and then measure the overall volatility. 

This way, the trader’s investment is based on several factors, so that when a market moves in a specific direction, the other markets follow suit in an inverted fashion.

Use low to no leverage

Another tip while trading Forex without a stop-loss strategy is to limit the use of leverage to as low as possible, even avoid it if you can. When you use leverage, you are trading with a bigger lot size and the market movement will result in more pips fluctuation.

This way, more pips move in the losing direction, and you might hit rock bottom soon. When you use leveraged money in a volatile market, and more pips are moving per each market fluctuation, you might receive a margin call from your broker.

When your margin account drops below the margin level, and you do not respond to the margin call, the broker can liquidate the security and close your trading position.

Therefore, a better practice for Forex trading without a stop-loss is to use small leverage of 1:2 maximum, or even not use leverage at all, and trade using your own money. When you trade using your money, you might expect fewer returns than trading with leverage, but at least you are at less risk, and market decline is not going to get you indebted to the broker.

Scalping

Scalping in Forex is a good trading strategy without a stop-loss option, this way you are entering and leaving the market in a few minutes (up to 15 minutes). When you are scalping in Forex there is no need to use the stop-loss order because you are already watching and executing.

Scalpers rely on accumulating small gains, by opening a position in the market, holding it for 1, 5, or 15 minutes then closing the trade and realizing whatever gains or losses that position resulted in.

Therefore, the scalping strategy works differently. It is not a solution for the stop-loss flaws, rather it is a trading strategy that can be used if you do not wish to implement the stop-loss order in your trades.

Negative balance protection

It is important to find out if your broker incorporates a negative balance protection mechanism in the trading accounts, which implies that when your market position drops to zero, the market position will close automatically. 

If your broker does not include this setting in your trading account and given that you do not use a stop-loss order, your market position might drop below zero and get into the negative, which makes you indebted to the broker.

If your broker does not offer negative balance protection, it is recommended that you set a stop-loss order at the zero point, to keep your trading account from sinking below zero.

• It is possible to trade more profitably without a stop-loss, using technical and fundamental analysis, and using other risk control tools
• A stop-loss order can prematurely stop your trading position from catching an upward trend following a short-term dip
• Using a stop-loss does not guarantee that your trade will always close at the specified price. In markets with less liquidity, it might take slightly longer than instant execution and your market position might be closed at a different price
• Using a high leverage can trigger the stop-loss option sooner than it would without leverage
• Using a hedging strategy combined with low to no leverage is a good tool to use if you are trading Forex with no stop-loss order