Therefore any normal Stop Loss orders set to be executed between 6, and 6, would actually be executed at 6, A Guaranteed Stop Loss ensures that your order is executed at the level you specified irrespective of any market gaps. Again, a normal Stop Loss order does not guarantee the level where your trade will be closed if the market gaps. For example, let's say that you buy the UK at 6,, and you set your Stop Loss at 6, Should the UK index 'gap' and fall straight to 6,, then your Stop Loss would close your trade at 6,, rather than at 6, This is because the stock market index didn't trade at 6, The next price that the market traded at was 6, and therefore your position would be closed at 6, However, if you used a Guaranteed Stop Loss order and set that at 6, then with the same market movement your order would be filled at 6, rather that 6, So even though a Guaranteed Stop comes with a small extra cost, it can save you money.
With this example it would have saved you 40 points minus 3 points for the cost of the order on a market like the UK If you add a Guaranteed Stop to your trade and the trade is closed before it hits the Guaranteed Stop, e. The potential cost is shown on the trade ticket before you trade e. For a breakdown of charges by market, please see the table below.
Minimum Distance Guaranteed Stop orders need to be placed further away from the level of your opening trade than a normal Stop Loss. The minimum distance is shown in the table below and also in the 'market information' on the trading platform. Naturally you do not need to calculate the minimum distance.
If you tick 'Guarantee' on the trade ticket see screenshot above then this will: a Make your Stop Loss a Guaranteed Stop Loss b Set your Guaranteed Stop Loss at the minimum distance You can move the Guaranteed Stop further away if you have the funds to cover your trade. Example 1 A Guaranteed Stop order on gold costs 5 x your stake. Important, this is only charged if your Guaranteed Stop order is triggered.
There is no charge if your order is not triggered. Again, the platform will calculate this for you. As with a normal Stop Loss you can still update the level of your Stop. You can add a Guaranteed Stop to the markets listed in the above table You can also check if you can add a Guaranteed Stop for a particular market.
This is shown in the market information on the platform, e. There will be certain times when the market being traded will not allow you to add a Guaranteed Stop Order. During these times the tick box on the trade ticket will be displayed but it will be disabled. Guaranteed stop losses can also be introduced after a position has been opened as a sort of banking mechanism. This effectively creates a risk free proposition for the trader, because any market reversal will be cut off before it starts to take hold, with any profits realised going forward an added bonus.
And furthermore, this process of adjusting the guaranteed stop loss level can be carried on to bank increasing profits as the position moves north. Part of the beauty and attraction in spread betting is its capacity for unlimited upside gains. A corollary of this is that losses are also uncapped and highly unpredictable. At the same time, traders have the flexibility to profit from the markets in both directions, which essentially allows brokers to create a mini-market of their own.
This means that even in downwards markets, traders can profit from selling a market that is falling away. In this event, the risks are still equally present — should the market rise, the trader will lose. On both sides of the coin, regardless of which camp a trader sits in, a reverse directional movement will accrue liability in the same proportion as always, factoring in the leverage effect.
In many respects it is very similar to the guaranteed stop loss, albeit residing in positive market territory. Guaranteed stop limits work in much the same way as guaranteed stop losses, although they are distinct in the sense that they reflect a ceiling price, rather than a floor price, at which a position will be closed. On first reading, this might seem a little counterintuitive — why would you want to cap earnings that are potentially unlimited?
The answer is that guaranteed stop limits are a slightly more nuanced issue, and their use is applicable to a number of varied and distinct circumstances. Firstly, guaranteed stop limits are used as the converse of stop losses in protecting against losses in short positions.
When a spread bettor sells a market, a rise in that market is effectively a loss for the trader — even though the market is performing well — because the trader has staked against the market performing badly. So, in the same way in which stop losses guard against runaway liability in buy positions, so too do stop limits guard against risks with sell positions. This can be an effective way to make a satisfactory amount from a trade while also notionally freeing up capital to trade in other markets and on other opportunities.
Assuming the stop limit is set at a sufficiently high level, this can be an effective strategy for automating the trade. Like their stop loss counterparts, guaranteed stop limits are a cost centre for traders to take into consideration, and this must be factored in to any equation — whether the stop limit is being used as a safeguard against loss or used to shore up profits.
In fact, guaranteed stop limits should be used more readily in markets where the decision to sell is more highly speculative, and where the market could in reality easily turn in either direction. This requires a careful consideration of all the often-complex factors that weigh-in in deciding how a market moves, and an objective analysis of the probabilities of the market moving in a direction that opposes your research and reasoning.
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Guaranteed stop losses work by allowing the trader to establish a set price point at which their position will automatically be closed. This price trigger is set underneath the current market rate, such that if the market happens to fall beyond that price point the trader is insulated from any further degree of risk or liability.
This is particularly important, given the impact of leverage in ramping up losses to multiples of the initial stake. Stop losses are automatically triggered, so traders need not do anything more to close a position or mitigate against the risks of a certain position than execute their guaranteed stop loss order at their chosen price point.
Using guaranteed stop losses on a consistent, regular basis is recommended, especially for new traders or for those without the capital to absorb a few heavier losses. Of course, this advice is tempered by the fact that guaranteed stop losses actually cost money, and eat away at the trading profits that can be expected from a particular trade.
Nevertheless, many traders would agree that the cost of guaranteed stop losses is a small price to pay for guarding against significant downward turns in trading positions. With this in mind, guaranteed stop losses should be used as priority in more volatile markets, or in more uncertain trading positions where it seems as though the market might unexpectedly fall away.
Guaranteed stop losses can also be introduced after a position has been opened as a sort of banking mechanism. This effectively creates a risk free proposition for the trader, because any market reversal will be cut off before it starts to take hold, with any profits realised going forward an added bonus. And furthermore, this process of adjusting the guaranteed stop loss level can be carried on to bank increasing profits as the position moves north.
Part of the beauty and attraction in spread betting is its capacity for unlimited upside gains. A corollary of this is that losses are also uncapped and highly unpredictable. At the same time, traders have the flexibility to profit from the markets in both directions, which essentially allows brokers to create a mini-market of their own. This means that even in downwards markets, traders can profit from selling a market that is falling away. In this event, the risks are still equally present — should the market rise, the trader will lose.
On both sides of the coin, regardless of which camp a trader sits in, a reverse directional movement will accrue liability in the same proportion as always, factoring in the leverage effect. In many respects it is very similar to the guaranteed stop loss, albeit residing in positive market territory. Guaranteed stop limits work in much the same way as guaranteed stop losses, although they are distinct in the sense that they reflect a ceiling price, rather than a floor price, at which a position will be closed.
On first reading, this might seem a little counterintuitive — why would you want to cap earnings that are potentially unlimited? The answer is that guaranteed stop limits are a slightly more nuanced issue, and their use is applicable to a number of varied and distinct circumstances. Guaranteed stops attract a certain premium and is normally paid the moment you place it, not when it is executed.
Not all spread betting providers offer guaranteed stop loss orders, so you have to check with your provider. Large orders that are normally executed without problems in normal market conditions may be subject to market gaps when trading volumes dry up or when there are sudden market movements. For instance, world events such as the earthquake and tsunami in Japan can trigger a high level of selling, resulting in markets opening sharply lower than their previous close.
Some spread betting providers cater for this by permitting spread traders the ability to set a guaranteed stop loss order on their trade so that if the market goes against them, they would have no further exposure beyond that particular level. A guaranteed stop loss order in practice means that you will sell the stocks at a given price regardless of underlying price movement e. GSLs work in a similar manner to stop losses.
You could consider the guaranteed stop loss to be equivalent to buying a put option at a given price with an indefinite? Moreover, before you can open a spread trade you must have enough funds in your account to cover the maximum possible loss. In this way you cannot lose any more funds than the monies you deposit. Guaranteed stop loss orders do not require a complex trading strategy, spread traders simply have the option to add a GSL at the time they place their order.
Typically the guaranteed stop loss price spread betters choose will mirror the level at which they would like to exit the trade in the event of a stock price fall, while still allowing some room for normal day-to-day market volatility. If you had paid to turn your stop order into a guaranteed stop order one, you would have been filled at the specified level of p. Most traders tend to utilise guaranteed orders in instances where they are trading volatile instruments or when trading an individual stock that may be susceptible to corporate action.
As the Vodafone share example illustrates, stocks can be prone to big moves when they open — either higher if, for instance, they are subject to a takeover bid or lower if they release a profit warning. There are some specifics you need to know about when evaluating whether or not to guarantee your stop loss order, such as the minimum distance they have to be left away from the present market price. Also, there are maximum limits to the stake size that providers will accept for a guaranteed stop order.
Some providers also allow traders to move the guaranteed stop loss order level with their stock price without charging any extra fees. For instance, keeping the same stop distance from market and expiry date as their original guaranteed stop loss orders, traders can change the limit to track with their stock price.
This allows them to lock in gains while still retaining protection against volatility. For dealings in markets where gapping is uncommon or for trades that you expect to last only a few mintues, there is normally no need to use guaranteed stops. It is also worth noting that index and forex markets are very much less prone to slippage.
A basic stop-loss is an instruction to close your position once it hits a set price that is less favourable than the current market price. It can be a useful tool, but if slippage occurs then your order may not be carried out at the price you specified. Guaranteed stops work in the same way as basic stops, except that they will always be filled at the level you set, even if prices move rapidly.
A guaranteed stop puts an absolute cap on your potential loss. Each trader has a different risk strategy in place that gives a different outcome to the trade. Discover how to trade with IG Academy, using our series of interactive courses, webinars and seminars. Go to IG Academy. Get answers. Or ask about opening an account on or newaccounts. New client: or newaccounts. Marketing partnerships: marketingpartnership ig. Professional clients can lose more than they deposit. All trading involves risk.
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Inbox Community Academy Help. Log in Create live account. Related search: Market Data. Market Data Type of market. Guaranteed stop definition. What is a guaranteed stop? Guaranteed stop-loss vs basic stop-loss A basic stop-loss is an instruction to close your position once it hits a set price that is less favourable than the current market price.
What are the benefits of using a guaranteed stop? An additional premium is not required to modify an existing GSLO. If you wish to place, modify or cancel a GSLO, you need to ensure that you have sufficient funds available in your account to cover any increase in position margin as a result. Let's take the UK as an example. You are concerned about market volatility, so decide to safeguard your trade by placing a guaranteed stop-loss order at to limit your losses should the market go against you.
An unexpected interest rate cut by the US Federal Reserve causes volatility in the markets overnight, leading the UK to gap by 90 points. If you hadn't placed the guaranteed stop on your position, your trade would have closed at the next available price, which in this case was Benefits of forex trading What is forex?
What is ethereum? What are the risks? Cryptocurrency trading examples What are cryptocurrencies? The advance of cryptos. How do I fund my account? How do I place a trade? Do you offer a demo account? How can I switch accounts? Search for something. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.