CFD stop loss orders vs. guaranteed stop loss orders

[DesignerBud]

Hi,

I've just opened an account at CMC using marketmaker. I'm wondering how secure is a stop loss order (which are free to place right?).

For instance, I work a 9-5 job so I would put in a trade early in the morning with a stop loss order incase something went wrong and then come home to see how it all went. If the stock went bad I am hoping that I would be automatically out of the trade at the stop loss I put in.

Is this how it works? I'm guessing a guaranteed stop loss is exactly that, guaranteed. Does that mean if a normal stop loss order misses the price I put in, it cancels my stop loss order automatically? Or does it go to the next best (lower) price? What happens exactly?

I haven't placed a trade before so I guess I am rather new so the demo account you start with will be very beneficial for me.

Thanks in advance.

 

[skyQuake]

Re: Stop loss orders CFDs VS Guaranteed stop loss orders

Unless you are holding equities overnight, Guarantee stop loss orders are a huge ripoff.

 

[kam75]

Re: Stop loss orders CFDs VS Guaranteed stop loss orders

Stop loss orders are free to place with your broker. When a stop is hit, the broker will do their best to execute your order at the stop price. But usually you will get a price a tick or two from your stoploss, depending on how a liquid market you are in. This is called slippage. Its no big deal and should be factored into your trading plan anyway.

The last time I checked with CMC Markets I was told their guaranteed stop loss (G.S.L.) orders can only be placed at a minimum of 5% from the market. and they vere very expensive. Dunno if this is still the case but assuming you're trading CFDs, they're about as useful as t1ts on a bull. Think about it- Most CFDs margin at 10% and if your G.S.L. is hit, voila, there goes 50% of your outlay - Not very good money management. At 5% margin you lose the lot!

Anyway I have yet to hear of a trader who consistently makes money using G.S.L's.
best regards

 

[peter2]

Re: Stop loss orders CFDs VS Guaranteed stop loss orders

DesignerBud: It is your responsibility to understand how your broker/provider executes your orders. You need to understand the advantages of the GSLO and the extra costs that are involved for this service vs. the routine stop loss.

CMC provides many examples that outline the differences of these stop loss orders. You must read them instead of asking for advice on a forum.

After all, isn't it your money?

 

[DesignerBud]

Re: Stop loss orders CFDs VS Guaranteed stop loss orders

Cheers for your replies. I guess I just wanted to know how unsecure making a normal stop loss over a guaranteed stop loss was. I'm ok with there being a slight slippage, I would have expected that obviously. Unless other people say otherwise your reply kam75 was the one I was hoping for. My mind is at ease =)

 

[peter2]

Re: CFD stop loss orders vs guaranteed stop loss orders

We had a small rally in the ASX market earlier this week and if I wanted to trade RIO to profit from this move then I could have bought some RIO-cfds. The major risk with buying RIO-cfds was the imminent release of the European panel report on the BHP-RIO takeover. In this scenario a GSLO would have been much better protection than the stop loss.

If a GSLO only saves you once then it pays for many more of them. GSLO's offer better protection during periods of high volatility. GSLO aren't used by traders to make money. They are used to reduce a trader's risk and limit losses.

 

[peter2]

Re: CFD stop loss orders vs guaranteed stop loss orders

Perhaps I should detail the RIO example to make this point clearer.

Monday: I decide to buy 100 RIO-cfds at $60 SL at $55, GSLO at $55 (Risk = $500 + comm + costs)

Tuesday: Price moves up with market and when it reaches $66, I move the SL up to $61 and the GSLO to $61.
As the SL's are above the buy price a small profit is "locked in" or is it?

Tuesday evening and news that BHP is withdrawing the bid breaks. RIO shares tank 30% in London overnight.

Wednesday: Rio opens at $41 your SL's are triggered and the broker executes the sell order at 40.90. Your GSLO is executed at $61.

The normal SL creates a loss of (60 - 40.80)*100 = $1920 + costs

The GSLO creates a profit of (61 - 60)*100 = $100 less costs.

This is a difference of $2,000.

 

[skyQuake]

Re: CFD stop loss orders vs guaranteed stop loss orders

Nice work on the GLSO, but have u found it effective in any other situations?

Those huge overnight gaps aren't that common even in this environment;

Also, whats the GSLO charge on index futures?

Thanks

 

[peter2]

Re: CFD stop loss orders vs guaranteed stop loss orders

Occasions when GSLO's should be considered;
- trading stocks involved with announced M+A bids,
- trading stocks over earnings, news events, AGM's
- trading over weekends in highly volatile conditions
- trading overnight in highly volatile conditions
- shorting stocks that have gone so low that there are potential takeover targets
- pyramiding aggressively as trend develops, position value becomes large, GSLO lowers margin which can be used elsewhere
- trading commodity cfds
- trading stock cfds in risky exchanges, Russia, China, India etc
- gambling with no money mgt
- any time that you are worried by the risk

Index GSLO costs 3 - 5 point extra/trade

 

[investorpaul]

Re: CFD stop loss orders vs guaranteed stop loss orders

Hi Guys

I didnt want to start a new thread for just one question so I will place it here.

Does anyone know how much IG markets charge for a guaranteed stop loss?

I have checked on the site and cant seem to see it mentioned. I would call them but I am currently at work, which makes difficult.

 

[skc]

Re: CFD stop loss orders vs guaranteed stop loss orders

Hi Guys

I didnt want to start a new thread for just one question so I will place it here.

Does anyone know how much IG markets charge for a guaranteed stop loss?

I have checked on the site and cant seem to see it mentioned. I would call them but I am currently at work, which makes difficult.

Around 0.3% of the top of my head, for large stocks (e.g. ASX100). Could be more for smaller caps. Some really crappy stocks have no guarantee offers.

The best way to find out is to sign up a demo account using an alternate email, and place a phantom trade.

 

[investorpaul]

Re: CFD stop loss orders vs guaranteed stop loss orders

Around 0.3% of the top of my head, for large stocks (e.g. ASX100).

Thanks SKC

I saw that normal orders are 0.1% or $8, so i expected it to be a at least double that.

does anyone know the $ amount, if I was trading a smaller position than that at which the 0.3% kicks in?

 

[skc]

Re: CFD stop loss orders vs guaranteed stop loss orders

Thanks SKC

I saw that normal orders are 0.1% or $8, so i expected it to be a at least double that.

does anyone know the $ amount, if I was trading a smaller position than that at which the 0.3% kicks in?

Your brokerage and GSL fee are two separate costs. You will need to pay GSL above the normal brokerage.

Brokerage 0.1% or $8 minimum.

GSL 0.3%, no minimum as far as I know.

Again, sign up a demo and place a GSL trade is the surest way to find out for the particular stock and position size.

 

[investorpaul]

Re: CFD stop loss orders vs guaranteed stop loss orders

Your brokerage and GSL fee are two separate costs. You will need to pay GSL above the normal brokerage.

Brokerage 0.1% or $8 minimum.

GSL 0.3%, no minimum as far as I know.

Again, sign up a demo and place a GSL trade is the surest way to find out for the particular stock and position size.

Cool, thanks SKC

I will call them later as well but at least I have a general idea now

 

[skyQuake]

Re: CFD stop loss orders vs guaranteed stop loss orders

Keep in mind most GSLO must be placed a min. of 5% away from the current price (this is for ASX200 majors); and up to 15% away for some small caps.