Limits of Risk-Reducing Orders

The placing of certain contingent orders such as stop-loss or stop-limit orders which are intended to limit loss of an outstanding futures position to certain amounts may not be effective because market conditions may make it impossible to execute such orders. In these cases, the trader will continue to own the outstanding futures position and will be liable for any loss that continues to accrue on the position. During periods of especially volatile price movements and in markets where price limits apply, the risk that stop-loss orders cannot be executed becomes greater.

While strategies that employ combinations of positions such as spread and straddle trades are often less risky than outright long or short positions, there may be times when such strategies expose the trader to as much risk as simple long or short positions.