What Types of Stop Orders are Available?
Q. What is a stop loss order?
A: A stop loss helps you to manage a potential loss in the event a spreadbet goes against you. A stop loss order is an instruction to your spread betting firm telling them to close your position once your losses reach a certain point.
So for instance if you bought Ladbrokes at 200p for £10 a point, if you didn't want to lose anymore than £100 if the trade went against you, you would set up your stop loss level at 190p (implying that the most you stand to lose is 10 points at £10 a point).
Note that most providers will allow you to adjust or cancel the Stop Loss as the market moves. There are many different order types that you can use to make your trades, including market, stop, limit, market if touched, and limit if touched, and each of these order types is designed to be used in different situations.
Stop Loss - an order to close a previously opened position at a price less profitable for the Customer than the price at the time of placing the order.
Buy Limit - an order to open a Buy position at a lower price than the price at the moment of placing the order;
Sell Limit - an order to open a Sell position at a price higher than the price at the moment of placing the order.
In practice, a stop loss order is a good way to ensure that most losses do not exceed £100 but it will not 'guarantee' it. If for instance, bad news comes out overnight and Ladbrokes shares open the following morning at 120p (below your stop of 190p), your position would be closed at 120p. This may come as a relief should the price continue falling or you may start to regret not taking a guaranteed stop loss order - which you could have fixed at 190p (for a fee...).
|If you go...
||set your stop loss...
||open your bet with a buy
||below current sell price
||open your bet with a sell
||above current buy price
SPREAD BETTING STOP LOSS CALCULATOR
Q. What types of orders are available?
A: Normally stop losses are free of charge to place, but are not guaranteed (except for guaranteed stop orders which comes at a premium). Below is a summary of possible orders; please note that your spread betting company may not offer all these orders or may refer them by a different name -:
- Market order - an instruction to buy or sell a trading contract at the current bid or offer price of the underlying security or trading instrument quoted by a spread betting company. The company in its absolute discretion can accept or reject the market order.
- Limit order - an instruction to either buy or sell a trading contract at the price threshold you have specified or at a price that is more favourable than the price threshold you have specified for the specified contract. There is a possibility that this kind of order will not be filled, however such orders prevent the possibility of a bad fill.
- Stop order - an instruction to Close Out or enter into the trading contract at the best available price after a pre-determined price threshold is reached. Putting a stop order on your position will allow you to potentially limit potential losses from adverse market fluctuations by closing your position at the best available price after the market price passes the price threshold you have set. The exact price of the stop loss is the result of a relationship between the maximum amount you want to risk (say 2%), the logical support levels on the chart, and the amount of capital you want to allocate to the trade.
- Contingent order - an instruction to place a limit order or a stop order to open a new position, while at the same time, another order is placed (Second Order). However this Second Order will only be effective if the parent order is executed. A contingent order cannot be attached to an existing open position. It must be placed when you open your position. For instance a trader could place 5 contingent orders together with one parent order for scaling out of a position.
- If Then Order - Some traders prefer planning their trades in advance using an automated order to open a new trade should the share hit their target entry level. This involves using either a stop or a limit (depending on whether the trigger level is above or below the present market level). A real risk with such working orders is that once executed they would be unprotected and a solution to this would be to link in a stop loss conditional order known as 'if done' or 'if then'. Such orders are contingent upon a working order being filled and which must be accepted before being attached to a working order. These orders can be If Then Limit or If Then Market orders.
- Pair Trade Order - The user can set an instruction by setting the difference between two symbols, and when the condition is met based upon the selected difference between the two symbols, an order is placed. These can be executed as market or OCO orders.
- Order Cancels Order (OCO) - Two separate stop or limit orders that are linked together and placed as one order. A 'one cancel the other' order thus allows you to leave two orders in the market and set them such that if one of the linked orders is executed, the other order is automatically cancelled by the system. This allows traders to automate the profit taking process since you can input a stop loss order and a limit order at the same time.
- Straddle Order - This is a combination of buy and sell in OCO form. For example, a user may place a buy stop above the
market, and a sell stop below the market as OCO orders. If one fills the other is automatically cancelled. The opposite of the
above would also be allowed.
- Bracket Order - A pair of OCO orders, Profit Target and Stop Loss, is placed and once one of the pair is filled, the other is
cancelled automatically. In the case of a partial fill of one of the orders, the number of contracts for the reciprocal order is
reduced accordingly. Profit Target and Stop Loss are defined in points/pips.
- Trailing stop orders - an instruction to place a stop order at a specific distance from the spread betting company's current price (Stop Distance). If the current price moves favourably away from the level of the stop order, the stop order will move so that the Stop Distance is maintained. However, this does not apply if the price has moved against you and then moves in your favour. If the current price moves adversely to the level of the stop order: the level of the stop order will not move, unless (before the trailing stop order is executed - see below) the price starts to move favourably to the level of the stop order. If the price (having moved adversely) does start to move favourably, the stop order will remain static unless and until the Stop Distance has been restored;
if the level of the stop order is reached, the stop order will be executed; the gap between the current price and the level of the stop order cannot be more than the Stop Distance, but it may be less if the current price moves adversely; and the current price moves in one direction and then another, the level of the stop order may or may not move, as outlined above. Trailing stops can be placed on OCO orders. Again you could for instance place 5 contingent trailing stops for each order in a pair of OCO orders to allow you to scale out of a position.
- Guaranteed stop loss order - an instruction to limit your losses, both during and outside market hours, to the amount specified. A guaranteed stop loss order means that even if the market gaps through and goes past your price threshold, the order will be filled at the price threshold set by you. A guaranteed stop loss order is available on selected markets and is subject to certain premium
fees, taking into account market volatility, liquidity and the type of underling.
- Chart Line Order -This order type allows the users to set orders based on a line drawn on a chart, such as a trend line or a Fibonacci retracement. The order may be a market or limit order that may be executed at or within 10 pips of the selected line.
- Market On Close/Time Orders - Market on close orders are specified to be executed only at the time of market close on a specified
market. Time orders allow the user to create orders that will only execute between user-specified time frames.
Q. What is the meaning of good till cancelled, good till end of day and good till date/time?
A: OK in a nutshell -:
Good till cancelled (GTC) means that as long as the underlying market price does not reach the order price, your spread betting order will continue to be active until you decide to cancel it.
Good till end of day means that as long as the underlying market price does not reach the order price, your spread betting order will continue to be active until the market closes.
Good till date/time means that as long as the underlying market price does not reach the order price, your spread betting order will continue to be active until the date and time that has been specified by you.
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