We have recently launched Guaranteed Stop Orders (GSOs) on a whole host of new markets including indices, currencies and commodities. This means you now get a sophisticated risk control tool and the potential to increase your leverage on the most actively traded markets.
Guaranteed Stop Orders (GSOs) are a powerful means of minimizing your risk when trading as they offer protection against market gapping and thus allow for more exact planning of your trades.
Let’s look at a simple example to illustrate how GSOs work. Suppose you’ve opened a long position on a share at a price of 100 points and placed your stop-loss order 10 points away at 90. Now let’s assume that overnight bad news breaks about the company and the market opens the following morning at only 75 points. With a standard (non-guaranteed) stop-loss order your position would be closed at the market opening price, (in this case a price of 75). This is 15 points below your original stop level. So your loss is greater than you intended.
With a Guaranteed Stop, on the other hand, you will never be closed out at a worse price than your stop level. In our example this means that we would close your position at a level of 90 and not the 75 that’s available in the market. In other words, having a GSO on your position protects you from the risk of market gapping and gives you the certainty that, once triggered, your stop level is the level at which your order will be filled irrespective of the price available in the market.
In return for guaranteeing your stop we apply a small charge which will be expressed as a higher opening price (or lower if you’re short) than you would have had on a non-GSO. For a detailed list of GSO charges by market please visit our overview here.
A further advantage of GSOs is that they allow you to open a position with a margin requirement that can be significantly lower than the standard Initial Margin Requirement (IMR). If you choose to open a position with a Guaranteed Stop then your margin requirement will be calculated by multiplying your stop distance by your stake.
Take for example a trade on the Dow Jones index. Suppose the Dow is trading at 9794 - 9800 points, has an IMR of 450 and you want to buy. Normally, you would have to commit 450 Euros as margin if you stake 1 Euro per point. However, if you choose to use a Guaranteed Stop and place it 60 points from your opening price then you only need 60 Euros as margin, which would free up 390 Euros in trading resources.
Please note that because of the nature of GSOs, a particular minimum distance will always apply and you will not be able to place a Guaranteed Stop to within less than the minimum distance from the opening price.
If you have any questions in relation to GSOs don't hesitate to contact us on 1850 88 20 20 or email client@deltaindex.com.