newbie question - spreadbetting & stop losses

[Actual]

I wasn't sure how to search for this question, so apologise if it's already been asked and answered somewhere. I am fairly new to spreadbetting, but have traded shares for a while and always use tight stops where practical. I recently started using limited risk spreadbetting accounts with IG Index, Capital Spreads and City Index - but their CGSL (computer-generated stop losses) are ridiculously far from my comfort zone in many cases.

If I was to use the "order" facility available with the platforms, could I create an opposite position when the mid-price reaches my own stop, effectively cancelling out the trade?

Example:
I buy £5 a point of BARCLAYS at 480p, with a CGSL at 432p
I create an "order" to sell £5 a point of BARCLAYS if the mid price reaches 450p

If/when Barclays falls to 450p would my sell order be filled and cancel out the open BUY order?
Apart from gap-downs, which I realise might scupper this, is there any reason why this wouldn't work?

 

[Actual]

I have answered my own question by trying it out. Yes, that does work. Although on my first attempt, the sell order was filled slightly lower than what I wanted (but saved me getting burned anyway).

 

[Pippppin]

Controlled Risk bets

GAPS can be a huge risk when spreadbetting (see the enclosed recent daily chart for the US stock Legg Mason)

After the NYSE close on 10th October, the company released some interim figures which the market did not like. The next day the stock opened more than 1300 pts lower. The only way you can protect yourself when spreadbetting against potentially large losses in this situation is to take "controlled risk bets". IG offer these. Your maximum possible loss is known when you enter the trade.

The orders you placed would not protect you in this situation. Tread carefully.

 

[Actual]

well actually I have both (effetively 2 stop losses). I have the computer generated stop loss that is manditory with the limited-risk accounts I hold. What I wanted, IN ADDITION to the CGSL is a tighter stop, for my own purposes. This means in normal day-to-day trading, my own stops work to protect my potential losses and help lock in profits, but I sleep well at night knowing that if the market gaps down overnight, the CGSL will save me from going bankrupt (but I can waive goodbye to my deposit on the initial trade).

 

[Vorbis]

well actually I have both (effetively 2 stop losses). I have the computer generated stop loss that is manditory with the limited-risk accounts I hold. What I wanted, IN ADDITION to the CGSL is a tighter stop, for my own purposes. This means in normal day-to-day trading, my own stops work to protect my potential losses and help lock in profits, but I sleep well at night knowing that if the market gaps down overnight, the CGSL will save me from going bankrupt (but I can waive goodbye to my deposit on the initial trade).

Sorry if I'm missing something here, but why not just adjust the initial stop to where you want it?

 

[Pippppin]

the CGSL would not save you from going bankrupt. If you are in a long position, and the market gapped much lower (well below your CGSL), your position would be closed at the opening mid-point of the spread.

Only if you take out a controlled risk trade, as offered by IG-Index for example, is your maximum potential loss known when you enter the trade. However, there is a premium to be paid in terms of the spread. You are in effect buying an insurance policy with a controlled risk trade.

 

[Actual]

To Vorbis: most of the limited risk spread betting accounts that I have (and have seen) have a minimum distance that the stop is allowed to be from the opening price of the trade. As an example, with IG Index on British Airways the stop cannot be moved closer than 25 points. I want tighter stops than that!

Pippppin: With IG I do use controlled risk trades (for which I must pay the extra premium) - while IG I think are a little bit on the expensive side, they have a great platform which has helped me learn. Now that I feel I know what I am doing, I am looking at such companies as Capital Spreads, City Index, CMC, Global Trader (who I also have a CFD account with) and Cantor.

City Index seem to be the cheapest for controlled risk trades, with the premium for a guaranteed stop just 1 pip.

 

[Vorbis]

To Vorbis: most of the limited risk spread betting accounts that I have (and have seen) have a minimum distance that the stop is allowed to be from the opening price of the trade. As an example, with IG Index on British Airways the stop cannot be moved closer than 25 points. I want tighter stops than that!

I see!

You will have the same problem with Cantor Index (Their spreads are poor as well), but Capital Spreads allow you to put it very close .

I ought to add that I only use non- guaranteed stops, I don't know if the same is true of guaranteed stops.