Guaranteed Stop Loss: what is guaranteed?


64 0
I'm wondering if you've been in that situation before.

I placed a Long spreadbet on a stock with a Guaranteed Stop Loss. At the time of the bet, the minimal distance was 5% for the stop to be triggered.

The following days, I adjusted the GLS up and down as to keep in line with the share price, at a 8% level so that I wouldn't risk to be stop-loss hunted (if that happens) in times of low liquidity (lunch time) and a potential 8% loss was a level I was confortable with.

The company whose share I bought are now subject to a CONDITIONAL take-over and the price shoot-up. The problem I have is that the spreadbetting company has as a result amended the minimal distance for GLS to 30% and I can't adjust up the level of protection on my long position to the usual 8% (or 5% for that matter) of the prevailing SB-quoted selling price, or even move it up as my GLS is still withinthe 30% (by a fraction) minimum distance. To add insult to injuries, the non-GSL slippage factor is...30%.

The way I see it, is that I paid a insurance premium to get covered at 95% and that protection has now been withdrawn and replaced with a 70% cover as the SB company is offloading the risk of the take-over not going through, and the associated volatility back to me. I certainly did not try to "game" the SB company and I think that this reduced level of protection should only apply to new long bets.

Which brings me to the questions

1/ what is actually guaranteed with a guaranteed stop loss if the provider can modify the level of protection whenever it chooses to do so (not really a question I admit)

2/ Have you been in that situation before, what do you think about it, how would you go about it?

Your opinions, comments and possible advice appreciated. Thanks.


96 3
Your initial guaranteed distance of 5% was intact until there was takeover speculation. When this happens, it is normal for spread betting companies to widen the minimum distance for guaranteed stops.

This is the norm across the industry


64 0
Hi Lucas,

I understand why they are doing it - the risk has increased - I was looking for opinions & comments as to who should bear this increased risk, so thank you for your reply - all the more so that this is not a topic that had the crowd exicted.
In a way, I feel "appeased" to know that this is a normal practice in the industry.

I came to understand their point of view: they protect an absolute level - not a relative - just as a put option with a fixed strike-price bought in the market would do. To move that strike price up would mean buy a new put option - but based on an higher implied volatility.

The stock is CSR plc, subject to a recommended take-over offer by Qualcom via a scheme of arrangement. It currently trades at 5% discount to the offer price. The SB company is IG Index.
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