The Dodgy Guaranteed Stop Trade - any thoughts?

[123cf]

In these times of volatility where you see prices of shares moving stupid % amounts in either direction (think country wide financial, Macquarie bank & Northern Rock) i came to start thinking of a way to abuse the Guaranteed Stop option that so many brokers offer.

Think of this.

You enter a long position, at commission of 0.01% and you put a guaranteed stop 5% away at a charge of 0.03%

You also enter a short position, at commission of 0.01% and you put a guaranteed stop 5% away at a charge of 0.03%

You enter this position just before close on a day where a stupidly volatile stock (like
northern rock) has just moved 10-15% that day.

You will also be charged 0.01% on each trade when you close out.

This give you a cost of 1% on the trade.

You also enter limit positions at 6% above/below each trade.

If the price exceeds a movement of 6% in EITEHR direction (this is the beauty) overnight, you will make a profit at whatever your order executes at, at open. If you were doing this every day with Northern Rock for instance you could be making 4-10% each night on your trades.

if the stock doesn’t move more than 5% you will still be in the position and can close out at a loss of 1% on the trade (commission and guaranteed stop costs) or you could close one side to continue to make a profit.

Any thoughts on this idea? or is it just retarded?

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www.123cfd.com

 

[Trader333]

In my view your positions should factor in the volatility of the instrument being traded and you can use ATR to do this. If you don't then how do you determine the likely move up or down ?


Paul

 

[Lightning McQueen]

Any thoughts on this idea? or is it just retarded?

I had a similar thought with finspreads orders, until I had a re-read of their order guide pdf and the guaranteed part of the show appears to be on the stop loss order only and not available on the buy/sell stop order, in any case the distance away from the actual price for the order would have negated any gains most probably

If in the real world your allowed to guarantee the entry price and I still can't get my head around that its actually possible or if thats what your implying, then I do not believe this idea is at all "retarded" just needs some checking up on, I just haven't been able to play with this one as I havent got a "real" trading account.

Good luck

Lightning

 

[TheBramble]

123, if you were the broker offering these facilities, do you think your business model would include offering the trading community such an inviting opportunity?

‘Guaranteed’ stops are ‘guaranteed’ to the extent the small print does not nullify some or all of that guarantee.

As LM points out above, your fills are dependent upon price action and volatility and your slippage is therefore incalculable in a wild market. And a T333 says, your ATR is a vital factor in establishing R:R – in an already risky situation.

This is similar to taking a bracket order on FX just ahead of NFP. Brokers aren’t stupid. Neither would you be if you were one.

Good line of thought though.