Trading the financial markets is not for everyone. Even the best traders sometimes get it wrong. In our experience, most traders at some point in their trading career make at least one losing trade. The key is to ensure that your profiting trades outnumber your losses.
Remember, as spread betting is a leveraged product, you are controlling a much larger position than your deposit would normally allow you to trade in the underlying market. The advantage of this is that your winning trades can return much greater profits. However, the main risk is that your losses can be magnified in exactly the same way as your profits can be. This means that risk management should play a crucial role in your trading strategy.
At City Index, we offer a range of tools to help you manage your trading risks. These include Stop Loss Orders and Guaranteed Stop Loss Orders. We also offer a range of free webinars and seminars to help enhance your knowledge of spread betting. See our Learn to Trade section for more information. We also provide a real-time Economic Calendar covering major financial events in the UK, EU and US, so you can plan your trading day around major economic events that are likely to impact the markets.
By using the right risk management tools, you could limit potential losses without capping your profit potential.
Standard Stop Loss Orders
Stop losses are used to reduce risk by closing a losing trade once a market passes a trigger value set by you. This means that you are able to automatically close trades and cut your losses if the market moves against you, helping you to limit your downside potential. Standard stop losses are not infallible though, because the order will close your trade at the best available price once the stop value has been triggered.
During times of market volatility, your trade could sometimes be closed out at a level that is different to your trigger value. This is known as market gapping. If the market does gap, your closing price could differ from the trigger value you have set.
At City Index, we offer standard stop loss orders freely across all markets on your trading account. See the market information tab located on the top-right corner of your trading platform window for more information.
Guaranteed Stop Loss Orders
Guaranteed Stop Loss Orders are the most efficient risk management tools available. They work in the same way as Standard Stop Loss Orders, except they guarantee to close your trade at the trigger value you have set, regardless of underlying market volatility and gapping. For this added insurance, Guaranteed Stop Loss Orders incur a small premium (debited from your cash balance), upon confirmation of the order, and minimum distances apply.
Example: Wall Street
For example purposes, let's say you have bought £2 per point of the Wall Street Index at 10100, and have highlighted 9950 as your maximum loss level, a £300 loss allowance (10100-9950 x £2). You can use a Guaranteed Stop Loss Order to ensure that should the Wall Street Index reach 9950, our systems automatically close out your trade at this level, to prevent you from incurring any further losses.
Unfortunately some bad company earnings pushed the Wall Street Index lower to 9900, and our systems automatically close your position out at 9950. Even though the Index continued to trade past your maximum risk allowance, the Guaranteed Stop Loss has already stopped your losses by automatically closing out your trade.
Please note that Guaranteed Stop Loss Orders are not available across all our markets. Please see the market information sheets located in our Range of Markets section for more information.
To limit your trading risk, we recommend that you consider a Guaranteed Stop Loss when you open a new position. This will help protect you if the price moves against you. See an example of how you could benefit when you use a Stop Loss Order.
See our risk disclosure notice, found in our Terms and Policies Document.
