Guaranteed stop loss

[DrVoles]

Hiya guys,

I'm new to the forum, as well as trading.
I've been trying out different approaches using a couple of demo accounts for the past couple of months. I've had modest success, I feel, but need to test more to ensure it wasn't blind luck. Fx trading primarily, 1hr and 4hr charts.

I've been using demo accounts from plus500 as well as mt5 demo account for fxpro.
I probably prefer fxpro if I'm honest.

I have a lot more learning and reading (and practicing) to do before going live, but I would appreciate some advice/opinions...

Apologies if asked before, but I've read a little about guarantee stop losses to protect from slippage etc (seem to come at a premium).

1. Would you recommend using them or do you have experience of using guaranteed stop losses?
2. Very few brokers offer them, any reason why this is? Do you know any brokers which use them that you could recommend?
3. If I'm exploring an avenue that I should worry less about, please tell me, and if that's the case - are there any brokers in particular you would recommend for a newbie, and why? Any brokers a new be should steer clear of?

I appreciate your thoughts.

 

[-hammertime-]

Best of luck to you friend.


What is your strategy - short term, scalping, intraday, etc? Trading live is nothing like practice. Everything is different. Cheers.

HT

 

[kwasik]

The only thing I can suggest is read up on reviews of forex brokers. and like hammertime said, it also depends on your preferred trading strategy.

 

[kalott]

Hiya guys,




2. Very few brokers offer them, any reason why this is? Do you know any brokers which use them that you could recommend?


I appreciate your thoughts.

some brokers claims to offer "negative balance protection"

but that stop is at zero balance

a guaranteed stop like the ones that IG and CMC offers you can use almost as a non guaranteed stop

 

[Raynold]

Welcome to the community mate. Which trading are you following right now?

 

[tomorton]

Guaranteed stops are not widely used - expensive and usually unnecessary.

That said, if in a high risk situation like an individual equity just before earnings announcement, could be worth the cost.

But this is just my thought - it would be interesting to hear if anyone deliberately targets these announcements as a strategy and if they use GS as insurance.

 

[Brumby]

I've read a little about guarantee stop losses to protect from slippage etc (seem to come at a premium).

A guaranteed stop loss is what is implied in the wording. It does come at a premium because you are buying insurance. Whether it is legally enforceable is probably unknown because you will have to read the fine print of the contract in special event like SNB where some brokers claim force majeure. Normally I suppose it would be a non issue.

1. Would you recommend using them or do you have experience of using guaranteed stop losses?

Whether you need to buy insurance or not depends on whether you have an insurable interest and that varies between individuals and their circumstance. I have used it only once in 17 years but that single event was only to test out the process out of curiosity. Once you invoke the guaranteed stop it is only valid at the price level set. Should you move your stop, the guarantee disappears with it unless you buy another guaranteed stop.

2. Very few brokers offer them, any reason why this is? Do you know any brokers which use them that you could recommend?

My single experience was with CMC but that was with stocks.

3. If I'm exploring an avenue that I should worry less about, please tell me, and if that's the case - are there any brokers in particular you would recommend for a newbie, and why? Any brokers a new be should steer clear of?

Since you are starting out, you have a long list of things you need to learn about risk and money management. Guaranteed stop is way down the list.

 

[DrVoles]

A guaranteed stop loss is what is implied in the wording. It does come at a premium because you are buying insurance. Whether it is legally enforceable is probably unknown because you will have to read the fine print of the contract in special event like SNB where some brokers claim force majeure. Normally I suppose it would be a non issue.


Whether you need to buy insurance or not depends on whether you have an insurable interest and that varies between individuals and their circumstance. I have used it only once in 17 years but that single event was only to test out the process out of curiosity. Once you invoke the guaranteed stop it is only valid at the price level set. Should you move your stop, the guarantee disappears with it unless you buy another guaranteed stop.


My single experience was with CMC but that was with stocks.


Since you are starting out, you have a long list of things you need to learn about risk and money management. Guaranteed stop is way down the list.

Very useful guys. Thanks for all your help.
I posted this when I knew far less than I know now, and there's still a lot to learn.
Happy trading guys.

 

[sminicooper]

A guaranteed stop loss is what is implied in the wording. It does come at a premium because you are buying insurance. Whether it is legally enforceable is probably unknown because you will have to read the fine print of the contract in special event like SNB where some brokers claim force majeure. Normally I suppose it would be a non issue.

Small premium 0.7% only payable if the stop is exercised. Not aware of any force majeure restrictions. Sometimes not available if you are shorting.


Whether you need to buy insurance or not depends on whether you have an insurable interest and that varies between individuals and their circumstance. I have used it only once in 17 years but that single event was only to test out the process out of curiosity. Once you invoke the guaranteed stop it is only valid at the price level set. Should you move your stop, the guarantee disappears with it unless you buy another guaranteed stop.

Once invoked, it can be moved in the direction of a profiting trade i.e. trailed with the guarantee remaining. Unable to specify any other stop.


My single experience was with CMC but that was with stocks.

Since you are starting out, you have a long list of things you need to learn about risk and money management. Guaranteed stop is way down the list.

Helpful input from Brumby. My added remarks (blue text) are in the context of a not particularly short-term trend trader using IG's facility.

The overwhelming advantage as far as I'm concerned is that I can define my total risk – one of the few things over which I have control. I think of it as a hard stop that I don't expect to be executed – I have a soft stop much closer – but is there in the event of a Black Swan event. IG normally specify minimum stop distance of 10% but occasionally larger which might make the trade impractical – no problem, just move on and trade something else; and think why IG want to limit their guarantee on that particular instrument!

For my type of trading it's low cost insurance that enables me to sleep easy.

 

[neil]

Demo First

Helpful input from Brumby. My added remarks (blue text) are in the context of a not particularly short-term trend trader using IG's facility.

The overwhelming advantage as far as I'm concerned is that I can define my total risk – one of the few things over which I have control. I think of it as a hard stop that I don't expect to be executed – I have a soft stop much closer – but is there in the event of a Black Swan event. IG normally specify minimum stop distance of 10% but occasionally larger which might make the trade impractical – no problem, just move on and trade something else; and think why IG want to limit their guarantee on that particular instrument!

For my type of trading it's low cost insurance that enables me to sleep easy.

Here's some video's to get you thinking :

 

[Quantt]

Helpful input from Brumby. My added remarks (blue text) are in the context of a not particularly short-term trend trader using IG's facility.

The overwhelming advantage as far as I'm concerned is that I can define my total risk – one of the few things over which I have control. I think of it as a hard stop that I don't expect to be executed – I have a soft stop much closer – but is there in the event of a Black Swan event. IG normally specify minimum stop distance of 10% but occasionally larger which might make the trade impractical – no problem, just move on and trade something else; and think why IG want to limit their guarantee on that particular instrument!

For my type of trading it's low cost insurance that enables me to sleep easy.

I am frankly not sure how this works for the Broker - it's a sure way to lose a lot of money quickly... Let's say tomorrow the market opens and I am 50% down and my guaranteed stop was only 5% down, they have to cover the 45% loss and charge me only 0.7% total if I exercise it...

This looks like amazing deal, especially the fact they'll charge me only if the event actually happens... too bad my brokers are not offering this...

 

[sminicooper]

I am frankly not sure how this works for the Broker - it's a sure way to lose a lot of money quickly... Let's say tomorrow the market opens and I am 50% down and my guaranteed stop was only 5% down, they have to cover the 45% loss and charge me only 0.7% total if I exercise it...

This looks like amazing deal, especially the fact they'll charge me only if the event actually happens... too bad my brokers are not offering this...

.......... Funnily enough, those are my thoughts also! Obviously IG aren't stupid and will have done their sums – in my experience the minimum stop distance is 10%. So perhaps they make a lot more money from traders doing trades where they feel nice and comfortably protected but in practice lose by closing out before they get to their relatively wide guaranteed stop – to the benefit of IG. I don't know how this works for FX – from the impression I get on this forum at least, that is where most punters operate.

 

[FXX]

I believe it is only viable for spread betters from a business model perspective because they take the other side of the trades without hedging for the average trader. I would be interested to know if a normal broker offers this. It isn't something I would use.

 

[sminicooper]

I believe it is only viable for spread betters from a business model perspective because they take the other side of the trades without hedging for the average trader. I would be interested to know if a normal broker offers this. It isn't something I would use.

I'm sure you're right on this – I don't see how the conventional broker could afford to offer such a facility, and why would he need to anyway? – He makes money whether we win or lose.

 

[Brumby]

I am frankly not sure how this works for the Broker - it's a sure way to lose a lot of money quickly... Let's say tomorrow the market opens and I am 50% down and my guaranteed stop was only 5% down, they have to cover the 45% loss and charge me only 0.7% total if I exercise it...

This looks like amazing deal, especially the fact they'll charge me only if the event actually happens... too bad my brokers are not offering this...

The same way insurance companies make money. They pool the premiums against risk events based on actuarial calculations.

My single experience was with CMC and that was more than 10 years ago. The cost for a guaranteed stop once invoked is incurred regardless of whether it is triggered. Every single change to the stop is a new insurance event and cost is incurred. I don't believe there is any insurance out there that you only incur a premium conditioned upon an actual claim. Every insurance company will go broke.

 

[Quantt]

The same way insurance companies make money. They pool the premiums against risk events based on actuarial calculations.

My single experience was with CMC and that was more than 10 years ago. The cost for a guaranteed stop once invoked is incurred regardless of whether it is triggered. Every single change to the stop is a new insurance event and cost is incurred. I don't believe there is any insurance out there that you only incur a premium conditioned upon an actual claim. Every insurance company will go broke.

Yep, that was my guess as well... there is no free lunch unfortunately...
Also you can do something similar hedging with stock options...

 

[sminicooper]

Yep, that was my guess as well... there is no free lunch unfortunately...
Also you can do something similar hedging with stock options...

Well certainly there are no free lunches in trading but I regard IG's offering as a bit of a free snackette -it would only be used in anger (Black Swan/massive gap) and only pay the premium if it's executed – it's a win-win for me.

 

[tomorton]

I'm wondering if a GS isn't a tool for actively targeting Black Swans - stocks BEFORE earnings announcements, forex pairs BEFORE bank rate decisions etc. Anyone doing this?