Shorting with Guaranteed Stops

Q. Can you always use guaranteed stop losses with a short?

I have a question regarding shorting - can you always use guaranteed stop losses with a short? Because a short exposes you to unlimited losses in case of a takeover...etc - but wouldn't this equate to a license to print money?? What's the catch with spread betting firms in using guaranteed stop losses in conjunction with shorts?

A: Generally when spreadbetting you can take out a guaranteed stoploss, yes. Though there are a few situations in which they might not be offered.

The catch is that you get quoted a worse spread (because in effect you are paying an insurance premium within the quote).

At certain spread betting companies you have no choice - all bets come with a guaranteed stop loss. Some other firms insist or advise that beginners working with guaranteed stoplosses for their first few weeks.

The disadvantage (with both guaranteed and non-guaranteed stops) is that you are sometimes required to place the stop at a distance that might not appeal.

Personally I've rarely use guaranteed stop losses - but don't take that as being wise.

EDIT: One point worth bearing in mind, is that you can of course subdivide a bet, placing say three bets at £2 per point instead of one at £6 per point - and can set different stop levels on each. And you can usually revisit each bet while it's in play and amend the stops.

Some firms aggregate bets - so if you place a bet in three parts on the same stock at differing prices, they lump them together at an average price. Other firms allow them to remain as separate bets. Some firms only allow you to exit multi-part bets in the same sequence you opened them - some firms allow you to close them in whatever sequence you wish. I find IG quite flexible in this.

Q. Yes, but suppose there are rumours of a takeover and I wanted to place a short with a guaranteed stop will the spread betting company still allow me to go short in that company using a GSL?

Thanks for your reply but suppose for a company like Rank Group which appears to have hawks circling all over it increasing corporate holdings (or any other company for that matter which has slight rumours of takeovers, buybacks, hostile bids...etc) - does a spread betting company like IG compensate for this by offering you a worse price than normal to short it? Or does IG simply prevent you from shorting it?

Because for these kinds of situations a guaranteed stop loss seems to more than justify the premium! it seems having a guaranteed stop loss with a short is generally far do spread betting companies generally insist that you place the stop away?

A: They don't need to take a judgement on such things - they can base their quote on the market price knowing that the market already reflects all of that. (Automatically factoring in data from the futures markets, for the distant quarterly quotes).

They win a tiny percentage on every bet (within the spread) regardless of which way it goes and regardless of whether punters win or lose. You can bet upwards or downwards on Rank - and they don't know which way you are betting when they quote anyway.

The hit they might occasionally take in honouring a guaranteed stop loss on a stock that leaps or plunges is covered by the premium they have collected on thousands of other guaranteed stop losses which didn't do that. Just like any insurance.

EDIT: The distance away that a stop can be placed is too variable to answer. Your best bet is to phone and ask in respect of a particular stock or index that you have in mind. They will happily give examples.

 ...Continues here - Shorting Disclosure Requirements and Restrictions

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