Guaranteed stop loss

This is a discussion on Guaranteed stop loss within the First Steps forums, part of the Reception category; Originally Posted by Brumby A guaranteed stop loss is what is implied in the wording. It does come at a ...

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Old Nov 17, 2017, 10:53am   #9
 
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Originally Posted by Brumby View Post
A guaranteed stop loss is what is implied in the wording. It does come at a premium because you are buying insurance. Whether it is legally enforceable is probably unknown because you will have to read the fine print of the contract in special event like SNB where some brokers claim force majeure. Normally I suppose it would be a non issue.

Small premium 0.7% only payable if the stop is exercised. Not aware of any force majeure restrictions. Sometimes not available if you are shorting.


Whether you need to buy insurance or not depends on whether you have an insurable interest and that varies between individuals and their circumstance. I have used it only once in 17 years but that single event was only to test out the process out of curiosity. Once you invoke the guaranteed stop it is only valid at the price level set. Should you move your stop, the guarantee disappears with it unless you buy another guaranteed stop.

Once invoked, it can be moved in the direction of a profiting trade i.e. trailed with the guarantee remaining. Unable to specify any other stop.


My single experience was with CMC but that was with stocks.

Since you are starting out, you have a long list of things you need to learn about risk and money management. Guaranteed stop is way down the list.
Helpful input from Brumby. My added remarks (blue text) are in the context of a not particularly short-term trend trader using IG's facility.

The overwhelming advantage as far as I'm concerned is that I can define my total risk – one of the few things over which I have control. I think of it as a hard stop that I don't expect to be executed – I have a soft stop much closer – but is there in the event of a Black Swan event. IG normally specify minimum stop distance of 10% but occasionally larger which might make the trade impractical – no problem, just move on and trade something else; and think why IG want to limit their guarantee on that particular instrument!

For my type of trading it's low cost insurance that enables me to sleep easy.
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Old Nov 17, 2017, 1:19pm   #10
 
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Originally Posted by sminicooper View Post
Helpful input from Brumby. My added remarks (blue text) are in the context of a not particularly short-term trend trader using IG's facility.

The overwhelming advantage as far as I'm concerned is that I can define my total risk – one of the few things over which I have control. I think of it as a hard stop that I don't expect to be executed – I have a soft stop much closer – but is there in the event of a Black Swan event. IG normally specify minimum stop distance of 10% but occasionally larger which might make the trade impractical – no problem, just move on and trade something else; and think why IG want to limit their guarantee on that particular instrument!

For my type of trading it's low cost insurance that enables me to sleep easy.
Here's some video's to get you thinking :

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Old Nov 17, 2017, 4:11pm   #11
 
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Originally Posted by sminicooper View Post
Helpful input from Brumby. My added remarks (blue text) are in the context of a not particularly short-term trend trader using IG's facility.

The overwhelming advantage as far as I'm concerned is that I can define my total risk – one of the few things over which I have control. I think of it as a hard stop that I don't expect to be executed – I have a soft stop much closer – but is there in the event of a Black Swan event. IG normally specify minimum stop distance of 10% but occasionally larger which might make the trade impractical – no problem, just move on and trade something else; and think why IG want to limit their guarantee on that particular instrument!

For my type of trading it's low cost insurance that enables me to sleep easy.
I am frankly not sure how this works for the Broker - it's a sure way to lose a lot of money quickly... Let's say tomorrow the market opens and I am 50% down and my guaranteed stop was only 5% down, they have to cover the 45% loss and charge me only 0.7% total if I exercise it...

This looks like amazing deal, especially the fact they'll charge me only if the event actually happens... too bad my brokers are not offering this...
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Before you trade even single penny on the stock market, please spend the time and educate yourself by back testing different trading strategies and ideas - go to eBay and search for "historical stock market data", you can buy 20 years of data for less than $100 - that's all you need to start.
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Old Nov 17, 2017, 4:24pm   #12
 
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I am frankly not sure how this works for the Broker - it's a sure way to lose a lot of money quickly... Let's say tomorrow the market opens and I am 50% down and my guaranteed stop was only 5% down, they have to cover the 45% loss and charge me only 0.7% total if I exercise it...

This looks like amazing deal, especially the fact they'll charge me only if the event actually happens... too bad my brokers are not offering this...
.......... Funnily enough, those are my thoughts also! Obviously IG aren't stupid and will have done their sums – in my experience the minimum stop distance is 10%. So perhaps they make a lot more money from traders doing trades where they feel nice and comfortably protected but in practice lose by closing out before they get to their relatively wide guaranteed stop – to the benefit of IG. I don't know how this works for FX – from the impression I get on this forum at least, that is where most punters operate.
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Old Nov 17, 2017, 4:33pm   #13
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I believe it is only viable for spread betters from a business model perspective because they take the other side of the trades without hedging for the average trader. I would be interested to know if a normal broker offers this. It isn't something I would use.
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Old Nov 17, 2017, 4:40pm   #14
 
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I believe it is only viable for spread betters from a business model perspective because they take the other side of the trades without hedging for the average trader. I would be interested to know if a normal broker offers this. It isn't something I would use.
I'm sure you're right on this – I don't see how the conventional broker could afford to offer such a facility, and why would he need to anyway? – He makes money whether we win or lose.
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Old Nov 17, 2017, 11:55pm   #15
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I am frankly not sure how this works for the Broker - it's a sure way to lose a lot of money quickly... Let's say tomorrow the market opens and I am 50% down and my guaranteed stop was only 5% down, they have to cover the 45% loss and charge me only 0.7% total if I exercise it...

This looks like amazing deal, especially the fact they'll charge me only if the event actually happens... too bad my brokers are not offering this...
The same way insurance companies make money. They pool the premiums against risk events based on actuarial calculations.

My single experience was with CMC and that was more than 10 years ago. The cost for a guaranteed stop once invoked is incurred regardless of whether it is triggered. Every single change to the stop is a new insurance event and cost is incurred. I don't believe there is any insurance out there that you only incur a premium conditioned upon an actual claim. Every insurance company will go broke.
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Old Nov 18, 2017, 3:20pm   #16
 
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The same way insurance companies make money. They pool the premiums against risk events based on actuarial calculations.

My single experience was with CMC and that was more than 10 years ago. The cost for a guaranteed stop once invoked is incurred regardless of whether it is triggered. Every single change to the stop is a new insurance event and cost is incurred. I don't believe there is any insurance out there that you only incur a premium conditioned upon an actual claim. Every insurance company will go broke.
Yep, that was my guess as well... there is no free lunch unfortunately...
Also you can do something similar hedging with stock options...
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My number 1 trading rule: EDUCATE YOURSELF!

Before you trade even single penny on the stock market, please spend the time and educate yourself by back testing different trading strategies and ideas - go to eBay and search for "historical stock market data", you can buy 20 years of data for less than $100 - that's all you need to start.
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