Guaranteed stop losses – what are the benefits and which brokers offer them?

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Many spread betting platforms and CFD brokers offer guaranteed stop losses to help traders mitigate risks.

But what are guaranteed stop losses and how do they differ from the other types of stop?

Firstly, here are some spread betting brokers that offer guaranteed stop losses:

Secondly, let’s list the different types of stop with a quick explanation of how they work.

Market stop

If the price trades through your stop you order will be executed at the market rate.  So for example, if you had an order to sell £10 FTSE at 6500 and the market trades down sharply to 6490 your stop will be executed at the market rate. In other words your 6500 stop will be filled at 6490.

Limit stop

This means that when the price trades through your stop limit your order will be placed in the form of a limit.  For example, if your stop limit to sell £10 FTSE at 6500 was triggered by the same price move and the FTSE went down to 6490 a limit order to sell £10 FTSE at 6500 would be placed.  Your order would not be filled at 6490 so if the market fell further you would still have your position.  Your stop limit would only be filled if the market traded back up to 6500.

Stop to enter

This can be either a market stop or a limit stop and refers to using a stop as an entry point to go with the market.  Unlike a normal limit order which is traditionally used to take profits, by placing a sell order above the market, a stop limit order is often used by traders when they see a trend confirmed.  For example, if you are flat the FTSE, but think that if it reaches 6600 it will continue to go up and want to take advantage of that breakout.  If the FTSE is trading 6580 now, you put a opt to open so that a buy order will be activated when the market touches 6600.

Guaranteed stop losses

All this means is that the price that you set your limit at will be guaranteed. Unlike market stops where there can be slippage or limit stops when you may not get a fill, with a guaranteed stop no matter what the market conditions you will always get the fill you want.

There are disadvantages of course.  There is an extra cost for this, as the broker may widen the spread or charge a premium execution fee.  Also always check the terms and conditions of your specific spread betting broker as there may be circumstances where they are not applicable.

 

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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously acting as multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.