Guaranteed Stop Losses – What Are They and Which Brokers Offer Them?
If you are looking for a broker that offers guaranteed stop-losses, you have come to the right place. Learn more about ‘GSLO’ – what they are, why they’re beneficial, how much they cost, which brokers offer them, plus more.
What Is a Guaranteed Stop Loss Order (GSLO)?
A guaranteed stop loss is the same as a standard stop-loss, the major difference being the term “guaranteed”. When you set a regular stop-loss, you are susceptible to market “gapping”. This means your stop-loss may not be triggered at the exact price you specify. However, with a GSL, a broker will close your trade at the exact price you have specified, even if the market gaps through your stop-los
Leading CFD Brokers That Offer Guaranteed Stop Loss Orders:
How Much Does a Guaranteed Stop Loss Cost?
The cost is typically based on the size of the position you wish to trade (i.e. the greater the value of the position, the more you’ll pay). Brokers will generally charge you in one of the following two ways;
- Number of points x quantity of your position
- Percentage x notional trade value
Always check with your broker to find out how they charge for GSLOs and get some examples off them. Brokers like TD365 will give you a specific cost on the trade ticket before you submit the trade so you know exactly how much you’ll be charged for the GSLO.
Another important factor to consider is when a broker charges you for a GSL. Some will charge you when you submit the trade, whereas some other brokers will only charge you if the GSL triggers. The latter is the more honest approach from a broker, i.e. you should not have to pay unless it is actually required.
Bob opens 20 x CFD contracts as a LONG position on the UK100 Index at 7,000. He places his guaranteed stop-loss 30 points away at 6,970. There is a large news announcement out of the UK. The UK100 Index drops 50 points within seconds to 6,950. Bob’s position is closed at 6,970 (a loss of GBP 600), despite the fact the market gapped through that price to 6,950.
Now, if Bob had instead used a standard stop-loss, he would have been stopped out at 6,950 and his loss would have been GBP 1,000 (20 contracts x 50 points) and not GBP 600. An additional loss of GBP 400!
Why Are Guaranteed Stop Losses a Good Idea?
The main difference between a standard stop-loss and one that is guaranteed, is that a normal stop loss does not fully protect you from market gapping. This is when the price “gaps” from one price to the next without trading at any price in between.
If you have an open trade with a standard stop loss attached to it and the market gaps against you, then your trade will be filled at the next available price. In cases of severe gapping, the price you are filled at may be far worse than your order price, resulting in an extremely large loss.
GSL’s are there to reduce your risk. Yes you pay a small premium for them however they are worth it!
Our advice is to always use stop losses where applicable. This will always depend on your level of experience, the market/s you are trading etc. GSL orders will give you added peace of mind and limit your losses should the unthinkable occur.