T2W Trading Community

Guaranteed Stop Loss

The Guaranteed Stop Loss (GSL) works just like a SL order, the biggest and only difference is the price that you request the trade to be closed at, IS the price at which you will be guaranteed that it will be stopped at. The price for using a GSL is usually several points extra spread on the trade and therefore an increased cost to your for executing the opening trade. In a nutshell, it costs you more money!

With normal SL closing orders we pay for opening a trade with a spread (difference between the mid-price and opening price). This is where the financial bookmaker makes their money. It’s a common misconception that the bookmaker makes their money from those that lose. In fact the bookmaker in this case makes their money from the spread and it’s the money from those that lose that pays those that win. I have been asked many times in the past, if a bookmaker could close your account if you get too good. The simple answer is they would be stupid to do this. As the better you get at making trades and the more successful you become the larger trades you will make and the more you will make them. Therefore, more profit for the bookmaker.

The spread is no different if you open a trade with or without a standard SL closing order. However, should you decide to use the above GSL closing order, the spread will be much larger, PLUS you usually have to pay an additional few points on top of the trade too, much like an insurance payment. So you do pay quite a bit more for your trades using a GSL, but they will save you a fortune should things not go in your favour.

To be honest, I rarely use a GSL, simply because I rarely trade in highly volatile areas. Even when I do, I tend to know the market a little before I go in so know what to expect to a degree. However, for you I would recommend that if you decide to venture into volatile markets: ALWAYS use a GSL. It will save you much more than it costs in the long run. Remember, out of 10 trades we can realistically only expect to make a real profit on 4. The other 6 we can expect to be losing trades. Therefore if we are not clever with our money management and go for volatile stocks and markets without using a GSL, the losing trades will eat into the profit made from the profitable trades and possibly into our deposit/margin.

At the end of the day it is your choice how you trade and whether you use a standard trade on a 3 month contract or a daily with a GSL. I have a friend who has traded for many years and only uses GSLs. But by the same token he is a very careful trader and doesn’t like risk much at all.

We want to keep the risk down to a bare minimum. This means making choices based on our ability to read charts and some fundamental data, then making wise opening trades (entries) and being clever by using SLs, GSLs and locking in profit as and when we can. PLUS making sure the losing trades we have, lose little and make no significant impact on our overall profitability.

To recap then; use a standard stop loss (SL) closing order on less volatile markets & stocks (FTSE/DOW), do NOT set your SL order too close to your opening one, else you will get “stopped out” and lose money, do LOCK IN profit as soon as you can by moving your SL order in the direction that locks in profit (depending on whether you have gone LONG or SHORT), and finally USE a Guaranteed Stop Loss (GSL) when trading in highly volatile markets.

But always be mindful of moving in the stop too close to the current market value of that trade. This can get you stopped out very quickly indeed. Look at the 15 minute data of that stock over 1 day, the chart you should use for this is the FB’s own chart. It shows you the data they are using. Look using candlesticks (more about those later), and you will see where the stock is bursting up or down. You should aim to be outside of these limits over that day on your stop loss to protect yourself from being stopped out. It’s best to use this technique when moving your stop and will limit the amount of times that you do get stopped out.

Finally on stop orders. Don't use a GSL as an insurance on a trade that you are uncertain about. If you are uncertain, simply DO NOT MAKE THAT TRADE.

The tools that we are provided with by financial bookmakers, although very simple ARE very powerful and KEY to your success in financial spread betting. Use them and use them wisely. Abuse or forget them and you will fail, like the 90% of the mug traders who blindly trade and have no money management.

We have come quite a long way in a relative short period of time. Don't worry too much if none of it is properly sinking in yet. Understand that I was in the same position as you are now, but eventually I got my head around the fact that what I was learning to do was/is relatively easy. Remember, read the Workbook a couple of times, and with a few examples of your own, try your best to work out any problems yourself. You can of course email me with any concerns or problems that you may have. I am here to help you as much as I can.

You should now know what financial spread betting is and the basics of opening and closing a trade, in addition to the main tools that the financial bookmakers (FB) provide you with in order to limit losses and lock in profit. We have also made a realisation that the biggest mistake that most make is the incorrect use or lack of use of the tools that are given to us by the FBs.