Guaranteed stop-loss vs regular stoploss

[Adecco]

Hi Guys

Just wondering what peoples opinions are on guaranteed stop losses?

I am currently trading a £5000 account.
With all my positions i have exposure to £10,000.

One of my positions exposed me to £2000. (I have a Stoploss meaning i am only risking 2%)
(These are stocks i am holding by the way.)

SO my question is - if for example that trade above went to £0 overnight I would lose 40% of my account in one go ! (£2,000 out of a £5,000 account)

I suppose ways to mitigate this is trade commods, forex etc.

So i guess my question is - is there any precedent for a stock basically going to pretty much £0 in one drop meaning all stop losses would be gapped?
i.e. is this something that could actually happen in the real world? Or is my scenario completely theoritical?

 

[0007]

Hi Guys

Just wondering what peoples opinions are on guaranteed stop losses?

I am currently trading a £5000 account.
With all my positions i have exposure to £10,000.

One of my positions exposed me to £2000. (I have a Stoploss meaning i am only risking 2%)
(These are stocks i am holding by the way.)

SO my question is - if for example that trade above went to £0 overnight I would lose 40% of my account in one go ! (£2,000 out of a £5,000 account)

I suppose ways to mitigate this is trade commods, forex etc.

So i guess my question is - is there any precedent for a stock basically going to pretty much £0 in one drop meaning all stop losses would be gapped?
i.e. is this something that could actually happen in the real world? Or is my scenario completely theoritical?

You might find this site of use: http://www.davemanuel.com/sp500-historical-data.php
(In order to minimise risks I only trade SP 500 shares and wherever possible short them to further minimise risk.) Whatever your chosen markets are, it's helpful to lay your hands on these kind of statistics. In my opinion (for what it's worth) you sound as if you are well over-leveraged above – a risk that could kill you in the end.

One of the problems with guaranteed stop losses is that not only do you have a wider spread (not too much of a problem if you're swing trading) but IG for example, won't let you place the stop closer than 10%. That's okay if it suits you but the wider your stop the less number of shares you can trade if you are position sizing sensibly. This will reduce the rate of accrual of your profits. Regardless of all that, I always place my stop where I think it is sensible and then work everything else around that.

 

[Adecco]

You might find this site of use: http://www.davemanuel.com/sp500-historical-data.php
(In order to minimise risks I only trade SP 500 shares and wherever possible short them to further minimise risk.) Whatever your chosen markets are, it's helpful to lay your hands on these kind of statistics. In my opinion (for what it's worth) you sound as if you are well over-leveraged above – a risk that could kill you in the end.

Interesting link. Thanks for that.

By the way - you mentioned you think i'm over-leveraged at 2:1?

With my limited knowledge i wouldn't have thought that was dangerous levels of leverage?

 

[alphahunter]

HI,

I would download S&P index daily's data from yahoo finance and work out the statistics OHLC and overnight.

 

[Hate2Lose]

Hi Guys

Just wondering what peoples opinions are on guaranteed stop losses?

I am currently trading a £5000 account.
With all my positions i have exposure to £10,000.

One of my positions exposed me to £2000. (I have a Stoploss meaning i am only risking 2%)
(These are stocks i am holding by the way.)

SO my question is - if for example that trade above went to £0 overnight I would lose 40% of my account in one go ! (£2,000 out of a £5,000 account)

I suppose ways to mitigate this is trade commods, forex etc.

So i guess my question is - is there any precedent for a stock basically going to pretty much £0 in one drop meaning all stop losses would be gapped?
i.e. is this something that could actually happen in the real world? Or is my scenario completely theoritical?

It’s possible, but very unlikely.

You’re even diversifying yourself – each position is £2k. So, even if the worst did happen, you’d be down £2k out of ten. You’re not even putting the whole account at risk.

More likely, you’ll be slipped a bit – i.e. you’ll get a worse price than your stop, but not to 0.

Names that roll off memory – Railtrack, Northern Rock, Marconi, Lehman Bros.

If you’re small cap, slightly more likely. In any case, I think the signs were probably there beforehand!