A quick guide to Limit Orders (aka ‘Take Profit’ Orders).
Why Use Limit Orders“The key to financial spread betting,” states Joshua Raymond, Market Strategist of City Index “is making sure your total profits outnumber your losses. When traders take profits too early and run their losses, they are already making life difficult for themselves.”
In spread betting, a trader’s psychology is a key factor in whether they ultimately turn a profit or a loss. Spread bettors literally watch live as their profits or losses evolve with the underlying market, and this can be tough on the emotions. With this in mind, limit orders can be an invaluable way of removing some of the pressure.
Use Limit Orders to Lock-In Your Trading ProfitsLimit orders lock in gains by closing a profitable trade once a market passes a trigger value set by the investor.
This means that you are able to automatically cash in your gains if the market moves in the way you expect, helping you to reach your profit targets.
For example, imagine you bought £2 per point of the FTSE 100 at 6,600, and highlighted 6,800 as your profit target, a £400 gain.
You could use a Limit order to ensure that, should the FTSE 100 reach 6,800, the spread betting companies would automatically close out your trade at that precise figure.
The Cost of a Limit OrderThere’s no charge for adding a Limit order (Take Profit order) to your trade.
Spread betting carries a high level of risk. You can lose more than your initial investment or stake. 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.