Trading Academy Lesson

Trading with City Index

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Guaranteed stop loss orders (GSLOs)

3-minute read

Guaranteed Stop Loss Orders work in the same way as standard Stop Loss orders. The key difference is that they guarantee to close your trade at the exact trigger value you set, regardless of underlying market volatility and gapping.

This is useful if you want added assurance that your position will be closed out at the exact price you specify.

Why is a Guaranteed Stop Loss Order beneficial?

  • Trade more, with lower margin required by placing a Guaranteed Stop

    When placing a Guaranteed Stop Loss Order, you are limiting your maximum risk, so we ask you for a lower margin as compared to the standard margin. This frees up additional funds for you to trade with

  • Trade with peace of mind

    With a Guaranteed Stop you know your maximum risk, even in periods of extreme volatility and market gapping. If triggered, it ensures your trade will be closed at the exact level you have chosen.

    Market gapping occurs when prices literally ‘gap’ between one price and the next, without trading at the prices in between.

    This usually happens in times of extreme market volatility. Although this is not common, it is important that you are aware of the potential implications of sudden, sharp changes in market volatility.

    Standard closing orders such as a stop loss or take profit doesn't fully protect you from trading risk as this is because the closing trade is executed at the next available price immediately after the order is triggered.

    This can be at the same price, or at a worse price, than the specified execution level. In cases of severe gapping, the execution price may be at a substantially worse price than your order price. This can result in a larger than expected loss on your trade.

    Guaranteed Stop Loss Orders ensure that the level at which an order will be executed is the exact level that you’ve specified, regardless of market gapping.

Guaranteed Stop Loss Orders are most useful:

  • If you want to lower margin required for the trade
  • If you are trading in volatile markets
  • If the market is prone to gapping (remember, markets can gap both ways)

Guaranteed Stop Loss Orders – what you need to know:

  • Guaranteed Stop Loss Order premium
    Guaranteed Stop Loss Orders are free to place, and you will only pay a premium if the stop is triggered.
  • Guaranteed Stop Loss Margin
    Guaranteed Stop Loss Orders enable you to trade with a lower margin requirement than you would with a normal position, as you determine your maximum risk when setting your trade size and GSLO level.

    When trading using Guaranteed Stops, margin is calculated as follows: Trade Size x Stop Distance x 1.1

    (Stop distance is the distance between the opening price and the stop price; the additional 1.1 is a regulatory requirement).

  • Amendments
    You can amend a Guaranteed Stop Loss Order without additional charges during market trading hours only.
  • Minimum distance
    Order levels must be placed a minimum distance above and below the current quoted price.
  • Availability
    We offer our Guaranteed Stop Loss Orders on more than 4,000 markets. This provides a cost-effective method of managing your risk.

For details of Guaranteed Stop Loss Orders on a particular market, please refer to the 'Market Information' tab in-platform.

How to use a Guaranteed Stop Loss Order

The following example shows how a Guaranteed Stop can be used effectively:

  • You believe the Wall Street market price is going to rise, so you buy 2 Wall Street CFDs with an opening price of 20420.
  • You place a Guaranteed Stop at 20300, which means the maximum loss on the trade would be (20420 - 20300) x 2 = $240.
  • The stop premium for Wall Street is 2x the quantity of CFDs and would therefore be 2 x 2 = $4 if your GSLO was triggered.
  • When using a Guaranteed Stop, margin is calculated as follows: Trade Size x Stop Distance x 1.1.
    In this example, your margin requirement would therefore be: 2 x 120 x 1.1 = $26
  • As a result of high volatility, the price of the Wall Street Index moves against you and unexpectedly drops from 20420 to 20259.
  • Despite market gapping, your trade closes automatically at your specified GSLO price of 20300. Your total loss on the trade is therefore $240 (maximum risk) + $4 (stop premium) = $244
  • If you had placed a normal Stop Loss on your position, your losses would have been far greater. You would have been closed out at the next available price which was 20259 and resulted in a loss of (20420 – 20259) x 2 = $322.

Guaranteed stop loss order

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