As I mentioned in Thursdays post I’ve been using Guaranteed stops on almost every trade I’ve made since opening an account with IG Index a couple of months ago. The question is “Has is really been cost effective using them?” So what is my answer to that question. Well to be honest I don’t know. Obviously there are benefits to using guaranteed stops but do the benefits outweigh the costs. If your trading a long position then your completely covered if the instrument your trading falls to zero over night. There’s no need to panic as your guaranteed stop will be filled at the price you specified simple. If you’ve not used a guaranteed stop then you’ve lost the entire value of the instrument times your stake. Could be very costly if you were trading a high priced stock at £100 per point, ouch!
But what if your short. Is it worth guaranteeing the stop then. In both cases either long or short you can suffer slippage. With long positions the most slippage you can suffer is to 0. With shot positions a price can potentially rise to any value. Not very likely but possible.
Since I predominately trade small stakes (because I am a Spread Betting Beginner after all) I’m not sure if it’s worth while me using guaranteed stops. Apart from the obvious benefit there are several costs to consider. Firstly they are not free. Each time you use a guaranteed stop you pay extra buy way of spread, there are minimum stop distances associated with them so if you’re after a tight stop forget about it and you can only adjust them during trading hours. Fine if you have access to your trading platform during this time but I bet most people don’t.
In summary I don’t think the extra costs involved make guaranteed stops worth while for me. I think I’m better of taking my chances with slippage which may or may not occur. I’d be interested to hear from others that trade with guaranteed stops and see what people think. Therefore I’ve started a new forum topic entitled Guaranteed Stops – Should I use them? to gauge peoples thoughts. Of course you can leave me a comment or E-mail me if you’d rather not go public with your thoughts.
Todays Spread Betting Action.
Not much to report on the trading front from me. With the FTSE falling 125 points or so today I hope your trading has gone well. I personally have a mix of long and short positions open at the moment as I still think we’re in for some turbulent times ahead.
I’ve adjusted a few stops but I’ve made no new trades since my trade in Aegis last week. Time is tight as always but hopefully I’ll have some time tonight to look for potential trades to place tomorrow.
Until next time,
“May the markets be with you!”
Harry,
The Spread Betting Beginner
