Guaranteed Stops
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Investors can now use Guaranteed Stops with Financial Spreads.
Clients have always been able to speculate on the markets knowing that their spread bets were protected by a stop loss order. The normal stop loss order is still automatically added to all trades. However, for added security, investors can now opt for a guaranteed stop instead.
Guaranteed Stop or Standard Stop Loss?
As discussed above, Financial Spreads already attached stop loss orders to all trades. However these standard stop loss orders do not guarantee the level where a spread bet will be closed if a market were to ‘gap’ and move against an investor’s position.
As an example, let’s say you spread bet on the FTSE 100 to go up (buy) at 5700, and you set a stop loss at 5680. Should the FTSE 100 gap and immediately fall to 5655, then your position would be closed at 5655, rather than at 5680.
This would happen because the index did not trade at the 5680 level, and therefore the spread betting company did not offer the price. The next price that was traded was 5655, and therefore your position would be closed at that level.
However, taking the same example, instead of setting a standard stop loss at 5680, let’s say you add a guaranteed stop at 5680. If the FTSE 100 then gapped down to 5655, your position would be closed at 5680, this is because your stop loss was guaranteed.
Costs with Guaranteed Stops
If you want to use a guaranteed stop note that they are essentially a form of insurance against gapping and therefore they come with a small extra cost.
Firstly, there is a small premium for wanting your stop loss to be guaranteed. Secondly the guaranteed stop needs to be placed further away from your initial trade than if it was a standard (non-guaranteed) stop order.
Spread Betting and Guaranteed Stops
According to Adam Jepsen, spokesperson for Financial Spreads, the new guaranteed orders will let investors spread bet with greater confidence. “As well as offering tight spreads, we have been working hard on a range of improvements such as improved forex pricing. Guaranteed stops though are a major new addition to the platform,” he said.
“Financial Spreads takes customer feedback seriously and we are extremely pleased to announce that we have added the guaranteed stop orders due to popular demand.
“Guaranteed stops enable investors to trade with confidence. With the guaranteed stop order the investor knows that they will be protected against any market gaps.”
"Guaranteed Stops" last update by R Thomas, 01-May-2012
Warning: Financial spread betting carries a high level of risk. You can lose more than your initial investment or stake. Financial spread betting may not be suitable for all investors. Only trade with money that you can afford to lose. Make sure you fully understand the risk involved. If necessary, seek independent financial advice.
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