CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.
Guaranteed Stops
One way to ensure your stop is executed exactly where you specified is by placing a guaranteed stop. Guaranteed stops work in the same way as basic stops, except that they will always be filled at exactly the level you set: even if gapping or slippage occurs.
If your guaranteed stop is triggered, though, it will incur a fee known as the Stop premium on the trade.
To set a guaranteed stop loss on your Deal or Order ticket, click on the drop-down arrow under ‘Stop’ and select ‘Guaranteed’.
Costs of a Guaranteed stop
How much a guaranteed stop costs depends on the market you are trading, but you’ll only be charged if the stop is triggered. You can see the guaranteed stop cost before opening a deal as the stop premium will display near the bottom of the ticket. This premium is held separately alongside the margin, and if triggered will be printed separately to your history and overnight statement.
The Stop premium is calculated as follows:
No. of contracts x Value per point x Stop premium
In the following example, this will be:
1 x US$10 x 1.2 = US$12
Margin calculation when using a Guaranteed stop
The margin for a position with a guaranteed stop is calculated as follows:
(No. of Contracts x Value per point x 110% x Stop distance) + Limited Risk premium
Therefore, if we’re referring to the above Deal ticket where EUR/USD is trading at 1.14803, assuming a guaranteed stop distance of 5 points, the total margin will be calculated as follows:
(1 x US$10 x 110% x 5) + 1 x US$10 x 1.2
= US$67
How stops can lower your margins
Compare the difference in margin requirements when you trade with and without stops.
Benefits of using a Guaranteed stop
In the event of a flash crash, an example of how a Guaranteed stop can act like an insurance is shown below.
Let us consider 3 different clients, A, B and C using different methods to manage their account.
All 3 clients have an open Buy trade of 10 contracts on USDJPY at 110.275.
During a flash crash of USDJPY on 3 January 2019, most clients were closed out at 106.864, while the pair bottomed out at 104.727, here’s the impact on the 3 accounts.
|
Client A Guaranteed stop level at 108.4. |
Client B Non-guaranteed stop at 108.4 |
Client C Did not place any stop for the position |
Closed out levels |
Guaranteed stop level of 108.4 |
Next available price with slippage at 106.864. |
Lowest price recorded was 104.727. |
Maximum loss: |
$23,725.40 |
$42,705.72 |
$69,405.48. |
By comparing the scenarios above, Client A who placed a guaranteed stop on his position has greatly minimised his losses as compared to Clients B and C who sustained much greater losses. If the flash crash did not happen, and the guaranteed stop was not triggered, there is also no impact to the client since the guaranteed stop premium will only be charged if the stop loss is triggered. Hence, guaranteed stops act like an insurance during such periods to safeguard clients.
Why am I unable to edit my Guaranteed stop?
There will be scenarios whereby you will not be able to edit your Guaranteed stops.
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The market is closed
When the market is closed, you can only move your guaranteed stop loss further away (i.e. increasing your guaranteed stop loss distance) but will not be able to move your guaranteed stop loss nearer.
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An increase in the minimum guaranteed stop distance
During periods of increased market volatility or expected market volatility, there may be a change in the minimum guaranteed stop distance as compared to the initial guaranteed stop loss distance. Therefore, you will have to adhere to the new guaranteed stop distance when looking to edit your guaranteed stop loss.
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