Stop loss vs Guaranteed Stop loss

Dear all,

I have read somewhere that in order for your stop loss to execute it must cross that point. If it doesn't cross that point and jumps then your stop loss won't execute and you could lose even more. So to make sure you hit your stop loss you have to set guaranteed stop loss but guaranteed stop loss has got premium attached to it.

Have anyone had any problems with stop loss not being hit and lost more? If stop loss will surely be hit then why do IG provide guaranteed stop loss?

BTW I have added two new rules to my spread bet trading.

Rule 1b - Never wander off after you open a deal. Keep your eyes on it all the time and close if things doesn't go according to plan or when you have a good chance to close. Use mobile (preferably iPhone) trading if you want to keep track of bets even in the loo

Rule 2b - Be patient.

My other rules are still valid which are:

Rule 1: Always use stop loss
Rule 2: Don't be greedy
Rule 3: Research and do more research

What market? I've traded equities before and had stocks open below my stop and had I not had a guaranteed stop i'd have lost a lot more that day.

I've been slipped during news. Not a problem. It happens. I think over time, GSL will empty your account quicker due to bigger spreads. Isn't it something idiotic like 18 pip spreads on Forward EUR/USD vs 6 pip spreads if you don't use GSL?

"So to make sure you hit your stop loss you have to set guaranteed stop loss but guaranteed stop loss has got premium attached to it."

premium worth it if you well imvho

longer timeframe / trade idea / proper stop

you only die once unless your 007 !

work it out against your own method, must be of value to many I would have thought


later

Andy

FormulaOneFan said:

Dear all,

I have read somewhere that in order for your stop loss to execute it must cross that point. If it doesn't cross that point and jumps then your stop loss won't execute and you could lose even more. So to make sure you hit your stop loss you have to set guaranteed stop loss but guaranteed stop loss has got premium attached to it.

Have anyone had any problems with stop loss not being hit and lost more? If stop loss will surely be hit then why do IG provide guaranteed stop loss?

BTW I have added two new rules to my spread bet trading.

Rule 1b - Never wander off after you open a deal. Keep your eyes on it all the time and close if things doesn't go according to plan or when you have a good chance to close. Use mobile (preferably iPhone) trading if you want to keep track of bets even in the loo

Rule 2b - Be patient.

My other rules are still valid which are:

Rule 1: Always use stop loss
Rule 2: Don't be greedy
Rule 3: Research and do more research

Click to expand...

Hi there,

I'd also add a strict reward-to-risk ratio based on technical analysis. if potential profit is not at least twice (3 times for me) of the risk (stop), it's dangerous to enter into trades.

My experience with IG is if you trade indices or FX during normal market hours you'll hardly get any slippage on non-G stop. Equities are tricky - they have a nasty habit of gapping up or down when market opens, so if you get one wrong, slippage will be very costly. I'd suggest G-stops on equity trades unless you plan to trade them intra-day and like you said will watch trades closely.

Hope these help!

Well here is the main problem - this is a policy on most exchanges.

This is not a problem in "active" markets, but if anyone has ever seen the mini currencies in the early US morning, moving totally in sync with the forex quotes..... but trading only sort of once per hour.... realized that IS a problem sometimes. NOt talking of a gap up / down - the bid/ask spread will nicely move tick by tick.... just noone executes a trade.

Only solution for that: no exchange based stop loss, but a program tracking bid and ask and entering a market order when those cross. Again, we talk not of a fast market in this scenario, but of one that simply does not properly trade. The bid / ask spread is actually pretty reasonable, and they move in sync (as arbitrageurs forward forex rates there), but they simply do not trade

The real questions are -

who are guaranteed stop losses marketed to? and

Do professional traders use them?

Answers:

retail clients

No, hardly ever.

Those answers should tell you who's getting the better trade and whether you should use them or not.

FormulaOneFan said:

Dear all,

I have read somewhere that in order for your stop loss to execute it must cross that point. If it doesn't cross that point and jumps then your stop loss won't execute and you could lose even more. So to make sure you hit your stop loss you have to set guaranteed stop loss but guaranteed stop loss has got premium attached to it.

Have anyone had any problems with stop loss not being hit and lost more? If stop loss will surely be hit then why do IG provide guaranteed stop loss?

BTW I have added two new rules to my spread bet trading.

Rule 1b - Never wander off after you open a deal. Keep your eyes on it all the time and close if things doesn't go according to plan or when you have a good chance to close. Use mobile (preferably iPhone) trading if you want to keep track of bets even in the loo

Rule 2b - Be patient.

My other rules are still valid which are:

Rule 1: Always use stop loss
Rule 2: Don't be greedy
Rule 3: Research and do more research

Click to expand...

I believe eToro offer guaranteed stop losses so there is absolutely no risk of debt.

IG Index also do but I think the increase the spread for this service.

Guaranteed stop loss in its true form is an insurance policy that can be purchased for a fee. I remember CMC used to offer them but personally have never used it. Like insurance policy, it is dependent on the individual situation. If you are maximising leverage on your portfolio, it may be prudent to take out a policy in the event of a price gap movement that may fall outside of your acceptable risk parameter or worst, trigger a margin call.

FormulaOneFan said:

Dear all,

I have read somewhere that in order for your stop loss to execute it must cross that point. If it doesn't cross that point and jumps then your stop loss won't execute and you could lose even more. So to make sure you hit your stop loss you have to set guaranteed stop loss but guaranteed stop loss has got premium attached to it.

Have anyone had any problems with stop loss not being hit and lost more? If stop loss will surely be hit then why do IG provide guaranteed stop loss?

BTW I have added two new rules to my spread bet trading.

Rule 1b - Never wander off after you open a deal. Keep your eyes on it all the time and close if things doesn't go according to plan or when you have a good chance to close. Use mobile (preferably iPhone) trading if you want to keep track of bets even in the loo

Rule 2b - Be patient.

My other rules are still valid which are:

Rule 1: Always use stop loss
Rule 2: Don't be greedy
Rule 3: Research and do more research

Click to expand...

I can only speak for myself, of course.

I use SB and they have a very bad name for skimming punters, according to some sources.

In countless years that I have been doing this with Finspreads I have never used a guaranteed stop, although that facility is available.

I have noted, often, that my stop has not been triggered until price returns to the stop level but, sooner or later, I have been stopped on, or very close to, it.

When I was trading with IG, in those days at 10 GBP minimum stake, I used a guaranteed stop because I was new, I suppose. but these days one can use lower stakes and I do becaue I, often, trade more than one market at the same time.

Watching every move, as you seem to do, must be very worrying when the price dips below and has not triggered the stop because there is no way of knowing what will happen.

I find that when leaving my computer with a stop on, the next time I look the stop has been triggered, in most cases, on the button.

Question 1

Is the guaranteed stop charge a fixed "x" GBP regardless of stake size? If it is, how much is it? it may be a good insurance premium for large sized traders. But if it is a porcentage of the stake then, of course, it is another matter and could become expensive.

Question 2.

Can the stop be moved up and down with price for no further charge?

Splitlink said:

Question 1

Is the guaranteed stop charge a fixed "x" GBP regardless of stake size? If it is, how much is it? it may be a good insurance premium for large sized traders. But if it is a porcentage of the stake then, of course, it is another matter and could become expensive.

Question 2.

Can the stop be moved up and down with price for no further charge?

Click to expand...

From memory, the fee is a function of points/cents/pips multiply by size and is valid as a static stop - not dynamic. A guaranteed stop by definition is guaranteed regardless if price gaps through it. Presumably, the broker actually hedges its risk if a stop is purchased.

Brumby said:

Presumably, the broker actually hedges its risk if a stop is purchased.

Click to expand...

I'm being lazy but I'm also old so you have respect that! It's, also, around 34º outside and I've just come in from a walk.

Does a trader paying 10 GBP per point pay more than another paying 2 GBP?

If you enter a trade at 6400 and place a 6390 guaranteed stop and the price moves to 6450, can you move the stop to 6440 for no further charge?

I've got your name and, if I can, I'll do you a favour one day.

Splitlink said:

I'm being lazy but I'm also old so you have respect that! It's, also, around 34º outside and I've just come in from a walk.

Does a trader paying 10 GBP per point pay more than another paying 2 GBP?

If you enter a trade at 6400 and place a 6390 guaranteed stop and the price moves to 6450, can you move the stop to 6440 for no further charge?

I've got your name and, if I can, I'll do you a favour one day.

Click to expand...

The answer is no from memory. Once purchased, the stop is either trigerred or abandoned and cannot be moved unless you buy a new stop.

I think its use is dependent on specific purpose and probably not suitable for an active trader because of the frequency associated with stop management. The scenario I think that may be suitable is for a portfolio trend trader holding reasonable size position but in a stock that may present frequent slippage. Say a position is build up at $25.00 and stock is trading at $28.00 and the portfolio wants to buy a quaranteed stop at $27.00. If it cost 10 cents to do so when slippage is occasionally 10-20 cents, then it may be worth the cost of business to do it. Just a thought.

Brumby said:

The answer is no from memory. Once purchased, the stop is either trigerred or abandoned and cannot be moved unless you buy a new stop.

I think its use is dependent on specific purpose and probably not suitable for an active trader because of the frequency associated with stop management. The scenario I think that may be suitable is for a portfolio trend trader holding reasonable size position but in a stock that may present frequent slippage. Say a position is build up at $25.00 and stock is trading at $28.00 and the portfolio wants to buy a quaranteed stop at $27.00. If it cost 10 cents to do so when slippage is occasionally 10-20 cents, then it may be worth the cost of business to do it. Just a thought.

Click to expand...

Thanks very much.

anley said:

The real questions are -

who are guaranteed stop losses marketed to? and

Do professional traders use them?

Answers:

retail clients

No, hardly ever.

Those answers should tell you who's getting the better trade and whether you should use them or not.

Click to expand...

Professional traders could just dream of having access to such easy insurance.

They spend loads on risk management

You make it sound like there is no counterpart which actually taking a risk for your safety

suitsork said:

Professional traders could just dream of having access to such easy insurance.

Click to expand...

Financial nightmares more like.

Yes, it's 'easy' but then so is burning a pile of £50 notes, just light a match.

Look at the costs of the insurance policy then work out the costs of self insuring, ie take the occasional slippage like a trader is supposed to.

What you'll find is this - self insuring is not only the cheapest option but guaranteed stop losses are very very expensive.

Also, remember we're dealing with financial services here and whenever they offer a 'deal' it's normally a deal for them, not the client. Guaranteed stop losses is an excellent example of this.

BobbyBB said:

Financial nightmares more like.

Yes, it's 'easy' but then so is burning a pile of £50 notes, just light a match.

Look at the costs of the insurance policy then work out the costs of self insuring, ie take the occasional slippage like a trader is supposed to.

What you'll find is this - self insuring is not only the cheapest option but guaranteed stop losses are very very expensive.

Also, remember we're dealing with financial services here and whenever they offer a 'deal' it's normally a deal for them, not the client. Guaranteed stop losses is an excellent example of this.

Click to expand...

It depends on your trading style and what you trade , i think it may be useful if you trade stocks and hold overnight , but if you just daytrade then it may be considered expensive ...

The other point to realise in all of this is that slippage is just part of the business, it's nothing to be afraid of. Slippage is like owning a shop and having to put up with some shoplifting. Yes, it happens, and there's nothing that's 100% effective against it (apart from not trading) so build the small costs into your business plan as well of course as taking measures to minimise it (not using easy to get stops over NFP or Fed announcements for example).

I've done many trades this year and have been slipped more than a few times but cannot remember one time in the last several months that the slippage bill was bad.

Summary: If you're not willing to accept some slippage here and there then the markets are not for you.

Trading is a risk business, it rewards those willing to accept risks and never rewards people who aren't willing to accept risk...

tar said:

It depends on your trading style and what you trade , i think it may be useful if you trade stocks and hold overnight , but if you just daytrade then it may be considered expensive ...

Click to expand...

Try it, the added costs will kill your P&L especially with the horrible costs of the spread on most stocks plus the inability to buy the bid or sell the offer. Mind you, the trader who trades that way will become a very 'valued client' of the spread bet company so I suppose there is a positive.

If someone is not willing to accept the risks then they won't get paid (overtime). If they insure the risks then again they won't get paid. The insurance is paid UPFRONT on every deal.

BobbyBB said:

Try it, the added costs will kill your P&L especially with the horrible costs of the spread on most stocks plus the inability to buy the bid or sell the offer. Mind you, the trader who trades that way will become a very 'valued client' of the spread bet company so I suppose there is a positive.

If someone is not willing to accept the risks then they won't get paid (overtime). If they insure the risks then again they won't get paid. The insurance is paid UPFRONT on every deal.

Click to expand...

It depends it is not black or white , for example stocks may gap 20%-30% overnight easily ...