Why Use a Trailing Stop?These orders help investors lock in their potential profits from volatile markets and manage their spread betting and CFD gains, and the many associated risks, more effectively.
Through the use of a trailing stop loss order investors can ‘trail’ a ‘stop loss’ behind their position.
The use of a trailing stop order maintains a stop loss order at a specific percentage point below or above the market price.
How Does a Trailing Stop Work?With a trailing stop loss order the stop loss does not remain static and will continuously change based on fluctuations in prices.
E.g. if a trader were to buy the FTSE 100 at a price of 6944-6945 with a trailing stop distance set by the client of 25 points then the stop loss order will be placed at 6920.
The trailing increment, set by the spread betting firm, might be 20 points. If the FTSE 100 were to then rise to 6984-6985 the stop would also move up by 40 points to 6960 and would continue to do so for every 20 point move upwards in the market.
If, however, the market were to drastically fall and the price dropped back down to 6944-6945 then the trailing stop would have been activated and the position would be closed at 6960.
Of course, it is also possible to lose more than the initial amount deposited when spread betting and CFD trading with a trailing stop loss order.
Guaranteed Trailing StopAt the moment, you cannot have a ‘Guaranteed Trailing Stop’.
If you want a Trailing Stop on a trade, you can only attach it to a normal Stop Loss order and not a Guaranteed Stop.
How Much Does it Cost to Use a Trailing Stop?Note that the spread betting companies tend not to charge you for turning your normal Stop Loss into a Trailing Stop.
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.