Spread betting stocks. What about gaps?

[kef2138]

Hi!

I've been working on a strategy to trade stocks and, since I've limited capital, decided to use either CFD or SB. My strategy is mid-term and thus I have stumbled upon an issue: gaps.

At first I though a guaranteed stop loss would solve the issue, however, the minimum requirement of 10% margin for US stocks and 5% for UK stocks is waaay to much for such highly leveraged trades. I've checked several brokers (IG, InterTrader, Saxo, etc) and they have the same requirements.

Does anybody have a (magical) solution?

Cheers!
Andrei

 

[0007]

Hi!

I've been working on a strategy to trade stocks and, since I've limited capital, decided to use either CFD or SB. My strategy is mid-term and thus I have stumbled upon an issue: gaps.

At first I though a guaranteed stop loss would solve the issue, however, the minimum requirement of 10% margin for US stocks and 5% for UK stocks is waaay to much for such highly leveraged trades. I've checked several brokers (IG, InterTrader, Saxo, etc) and they have the same requirements.

Does anybody have a (magical) solution?

Cheers!
Andrei

Regrettably there is no magical solution. You have correctly identified one of the shortcomings of guaranteed stops. If you hold stocks overnight then you have to make reasonable allowance for gaps and opening spikes by having a suitably wide stop but even so, you cannot allow for every eventuality and on occasion the gap will bite you! If you are reasonably good in your estimation of long or short then more often than not a gap will work in your favour and overall you will be okay. When trading with limited capital the temptation is to to increase risk and become over leveraged – it will kill you in the end. If you are grossly under capitalised my suggestion is to paper trade until you have amassed sufficient funds.

 

[Hate2Lose]

Hi!

I've been working on a strategy to trade stocks and, since I've limited capital, decided to use either CFD or SB. My strategy is mid-term and thus I have stumbled upon an issue: gaps.

At first I though a guaranteed stop loss would solve the issue, however, the minimum requirement of 10% margin for US stocks and 5% for UK stocks is waaay to much for such highly leveraged trades. I've checked several brokers (IG, InterTrader, Saxo, etc) and they have the same requirements.

Does anybody have a (magical) solution?

Cheers!
Andrei

There is none. They're not silly, otherwise they wouldn't be here!

You might be able to outsmart them if they miss a trick. See if you can find 5% guaranteed stops, but use in a situation that you think will move it more than 5%. Go long and short - a pseudo strangle/straddle (can never remember which I which...)

 

[Stargunner]

Ayondo offer free guaranteed stops on some products

 

[alphahunter]

kef2138,

Are you trading small mid or large caps?

I don't use them in large caps and very occasionally on mid caps, unless I am expecting a binary event such as the outcome of a law case, a company in take-over talks, etc,...
GSL can get hit more often that you think, only to see the share price getting back to the initial equilibrium. In the end you trade more and pay an extra spread for the guarantee. There may be a case for speculative junior oil exporers - but I don't trade these.

To get a feel, I would download from yahoo finance the OHLC prices and get myself a nice distribution bell of daily amplitude and gaps before I decide whether this is worth the price on non-binary events.

 

[kef2138]

kef2138,

Are you trading small mid or large caps?

I don't use them in large caps and very occasionally on mid caps, unless I am expecting a binary event such as the outcome of a law case, a company in take-over talks, etc,...
GSL can get hit more often that you think, only to see the share price getting back to the initial equilibrium. In the end you trade more and pay an extra spread for the guarantee. There may be a case for speculative junior oil exporers - but I don't trade these.

To get a feel, I would download from yahoo finance the OHLC prices and get myself a nice distribution bell of daily amplitude and gaps before I decide whether this is worth the price on non-binary events.

Large caps.

I guess it depends on how you set up your GSL. I usually set them 50-150 points from my entry points depending on the share price.