How to manage your risks

  • In our experience, most traders will, at some point in their trading career, make at least one losing trade. Even the best traders don’t always make a profit. But, there are things you can do to try to ensure your profitable trades outnumber your losses.

    Remember, as spread betting is a leveraged product, you’re 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, you also run the risk of your losses being magnified in exactly the same way. Risk management should play a crucial role in your trading strategy.

    Risk management tools you can use to limit your losses

    At City Index, we offer a range of tools to help you manage your trading risks. These include stop loss orders, trailing stops and guaranteed stop loss orders. You can read more about these below.

    We offer a range of free trading webinars and interactive seminars to help enhance your knowledge of spread betting and make you a more confident trader.

    We also provide a real-time economic calendar that covers major market-affecting events in the UK, EU and US, which will help you plan your trades.

    By using the right risk-management tools, you can limit your potential losses without capping your profit potential.

    What are standard stop loss orders (SLOs)?

    Stop loss orders can be used to close a losing trade once a market passes a specific trigger value that has been set by you. This means you’re able to automatically close trades and cut your losses if the market moves against you.

    SLOs are not infallible, though, because the order will close your trade at the best available price once your pre-set stop value has been triggered. This means that 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 might differ from the trigger value you set.

    At City Index, we offer standard stop loss orders freely across all markets on your trading account.

    The market information tab located on the top-right corner of your trading platform window contains more information.

    What are trailing stops?

    Trailing stops are a powerful risk management tool, helping you to minimise potential losses, without setting a limit on your potential gains.

    A trailing stop is created by setting a stop order that ‘trails’ your position by a specific number of points. If your trade moves in your favour, the trailing stop moves with the market, executing only when the market moves against you by the set number of points.

    A Sell trailing stop would be placed a fixed number of points below the market price. As the market price rises, the stop price rises too, ‘trailing’ the market price by the specified number of points. Should the price fall, the stop price holds, and a sell order is submitted once the stop price is hit.

    Buy trailing stop orders are the mirror image of Sell trailing stop orders, and are most appropriate for use in falling markets.

    A trailing stop is more flexible than a fixed stop loss, since it automatically tracks the market’s price direction and does not have to be manually reset, as you would have to with a standard stop loss order.

    As with standard stop loss orders, trailing stops are not guaranteed – therefore in periods of market gapping your order may not be triggered at the specified price. Instead, your order will be triggered and you trade executed at the best available price our system can deliver you – it’s important to note that this price may be worse than the level specified by you.

    What are guaranteed stop loss orders (GSLOs)?

    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 set, regardless of underlying market volatility and gapping. For this added peace of mind, guaranteed stop loss orders do incur a small premium (debited from your cash balance), on confirmation of the order and minimum distances apply.

    How to use a guaranteed stop loss order

    For example purposes, let's say you've bought £2 per point of the Wall Street Index at 16100, and have highlighted 15950 as your maximum loss level, a £300 loss allowance.

    You can use a guaranteed stop loss order to ensure that if the Wall Street Index reaches your specified level, our systems automatically close out your trade: to prevent you from incurring further losses.

    Visual example of using a guaranteed stop loss order


    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 our risk disclosure notice, found in our terms and policies document.

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