Important changes to IG Index’s limited risk service

From Monday 2 July 2007:

• All Stop and Limit Orders to be triggered by our bid/offer not the mid-price.
• Simplified Controlled Risk pricing and execution.
• Automatic adjustments to existing position and orders.

We are changing the way that we operate our limited risk service. This will affect both guaranteed and non-guaranteed Stop and Limit Orders on all of our financial spread betting markets. Most significantly, you will no longer have the option to view Controlled Risk prices as all bets will be based on the regular bid/offer price.

These changes are designed to simply betting with limited risk, and will make it easier for you to place orders.

Essentially, you will now only see one bid/offer price for each of our financial markets. That is, there will no longer be a distinct Controlled Risk price. If you choose to open a Controlled Risk bet, with a guaranteed Stop, a Controlled Risk premium will instead be added to your opening price.

And whether you use a guaranteed or a non-guaranteed Stop, the order will now only be triggered if the relevant closing price (that is, the bid price for a long position, the offer price for a long position) hits your stated level.

This means that you will no longer pay the full dealing spread when you open your Controlled Risk bet, and your bet will no longer close at the mid-price (or the market bid/offer price in the case of bets on shares).

So you pay the opening spread on opening, plus the Controlled Risk premium, and the closing spread on closing.

In practice…

Say you want to ‘buy’ our Daily Wall Street as a Controlled Risk bet, in order to put an absolute limit on any potential losses. Our quote is 13310 – 13314, and you decide to bet GBP5 per point at our offer price. The Controlled Risk premium of 3 points is added now, so that your opening price is 13317.

You only want to risk losing GBP300, so you need to restrict your position from going more than 60 points against you. You therefore place your guaranteed Stop at 13257. Your bet will then be automatically closed should our bid price (or ‘sell’ price) hit 13257.

Suppose the index falls later in the day and our price for Daily Wall Street drops to 13257 – 13261. Your bet will now be closed at 13257 for a loss of (13317 – 13257) x GBP5 per point = GBP300.

Important Note: In this example the mid-price of our quote has not actually dropped to your Stop level of 13257, and the market may indeed rally before it hits this level, but your bet is closed because the bid price has hit 13257. From July 2 you should please bear this in mind when setting your Stop levels.

Orders to Open

These changes will also affect any order you place to open a new position should the market hit your specified level (known as an ‘order to open’).

For instance, if you place a Limit Order to ‘buy’ our Spot EUR/USD should the price fall to 13554, this order will be triggered if our price reaches 13552 – 13554. That is, the order will be triggered if our offer price hits 13554, as it is no longer dependent on the mid-price of our quote.

You should note however that, as with all our Limit Orders to open new positions, we may not always be able to fill your order in the full size requested, dependent on conditions in the underlying market.

Your current bets and orders

We shall make automatic adjustments to your open bets and active orders at midnight on 1 July to accommodate these changes.

Active orders

Any active orders you have on 1 July, whether to open or to close, guaranteed or non-guaranteed, will be switched from the old method (based on the mid-price) to the new one (based on the relevant bid or offer price).

For instance, an order to ‘buy’ our Spot GBP/USD should the mid-price hit 19824.5 will be automatically converted into an order to ‘buy’ if the offer price hits 19826 (as a bid/offer of 19823 – 19826 equates to a mid-price of 19824.5).

This adjustment will be based on our normal ‘in-hours’ dealing spread, even if the market is trading ‘out-of-hours’ at the time of the switchover. We strongly advise you to check all of your adjusted order levels on July 2, so you can make any revisions as desired.

Open bets

Also, for any Controlled Risk bets you have open at midnight 1 July, a rebate will b e made to your account to cover the difference between the two methods of calculation.

For instance, say you open a Controlled Risk bet on September FTSE before the switchover date. The Controlled Risk price is 6483 and you ‘buy’ GBP10 per point at the opening price of 6492 (i.e. 6483 plus the full Controlled Risk spread of 9 points, which includes a dealing spread of 6 points).

From 2 July, under the new method, you will pay a closing spread on this bet at the regular bid price for September FTSE. As you have already paid the full dealing spread on opening, we will therefore credit a rebate of half the dealing spread you have paid upfront. This works out at GBP10 per point x 3 points = GBP30.

The bet can now be closed at the regular bid price at no extra cost to you. Your Stop Level will also have been adjusted from the mid-price to the bid price as described above.

Tags: igindex, limit orders, stop loss orders

This entry was posted on Wednesday, June 20th, 2007 at 2:50 am and is filed under Broker News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.