Guaranteed Stops/Limits

From 123CFD

Guaranteed stop losses can be a wonderful tool in minimizing risk. Most notably in volatile markets and with stocks that experience large movement in price during overnight trading.

A guaranteed stop is a normal stop loss, except you are guaranteed to close your position at the specified price.

For example, if you purchase MBL at $80 per share with a guaranteed stop at $76 and during overnight trading, the price falls to $75, your position will be closed at $76. Saving you $1 per share.

If you were using normal stops, your broker would put in a trade to close the position at the opening price, after the grey period, which could mean you close out at $75 or even less, depending on how the opening minutes of the market move.

This can amount to great savings.

Guaranteed stop losses do come at a premium however. Usually between 0.02-0.05% of the position. With average commission sitting at around 0.01% this can become quite an expensive exercise.

Besides that, guaranteed stop losses usually have to be placed at least 5% away from the opening price (smaller for indices and sector trades), meaning you have to suffer at least a 5% loss for the stop to be useful.

Some brokers let you move stop after the position is open (some do it for free, some charge a moving fee) which can become quite useful for long term trades or highly volatile stocks.