CFD Trading Stops explained by professional forex trading experts, All you need to know about CFD Trading Stops.
CFD Trading Stops
A guaranteed stop-loss order in CFD Trading or Forex Trading markets is a risk management order that is used to help you manage risks when trading the financial markets. Guaranteed stop-loss orders (GSLOs) work in the same way as stop-loss orders, with the main difference being that they guarantee to close out your trade at the price specified by you, regardless of market volatility or gapping.
This is especially useful when market conditions are volatile and prices move suddenly from one level to another, without passing through the level in between. Price gapping (or slippage) can occur following major market-moving events and news announcements or on weekends, when trading is closed.
CFD Trading Stops Example
Let’s take the UK 100 as an example. You want to go long on the UK 100 and our current sell/buy price is 6694/6695, so you decide to buy one unit at 6695. You are concerned about market volatility, so decide to safeguard your trade by placing a guaranteed stop-loss order at 6650 to limit your losses should the market go against you. In this example, to place a GSLO on your one unit buy trade on the UK 100, the cost is £1 (1 GBP per unit).
An unexpected interest rate cut by the US Federal Reserve causes volatility in the markets overnight, leading the UK 100 to gap by 90 points. The following morning, the UK 100 opens at 6604/6605.
As you had placed a guaranteed stop-loss, your trade closed out at 6650, resulting in a loss of £45 (6695-6650 x 1).
If you hadn’t placed the guaranteed stop on your position, your trade would have closed at the next available price, which in this case was 6605. This means you would have lost £90 (6695-6605 x 1).
CFD Trading Stops Conclusion
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