A Stop-Loss Order is a type of order used by traders to limit their losses. It automatically executes a buy or sell order when a specified price level is reached, thereby closing the position.

Here are some situations where a Stop-Loss Order is used:

1. Loss Prevention: Traders use Stop-Loss Orders to automatically close a position if losses reach a pre-set maximum amount. This helps prevent significant losses and manage risk.

2. Unexpected Market Movement: If the price of a currency pair moves contrary to the trader’s expectations, a Stop-Loss Order is used to minimize losses. The position is automatically closed when the price reaches the specified level.

A Stop-Loss Order is set by the trader on the trading platform. The trader specifies the loss level they are willing to tolerate and instructs the platform to automatically close the position if that price level is reached.

For example, if a trader holds a long position in the EUR/USD currency pair and the current price is 1.2000, they might set a Stop-Loss Order at 1.1950. If the price falls to 1.1950, the position will be automatically closed, limiting the loss to that level. This way, even if the price continues to decline contrary to expectations, the loss is contained at 1.1950.

Stop-Loss Orders are a crucial risk management tool and should be actively utilized by traders to control losses. Traders should set appropriate Stop-Loss levels based on their risk tolerance.