Guaranteed Stop Loss Orders

Trading with a guaranteed stop loss broker provides an extra risk management mechanism that can often save your trading account from disaster.

But what is a guaranteed stop loss order, how do they work and which brokers offer them? Read our guide below to find out more on guaranteed stop losses.

Firstly, What is a Normal Stop Loss Order?

A standard stop loss order is a basic risk management tool that can limit or prevent large losses. In essence, you enter the price that you would like your trade to be automatically closed out at, if the trade goes against you (i.e. you are making a loss).

Example;
  • You open a 5 unit BUY trade on the UK100 index at 6,000.
  • After several hours, the price of the UK100 is 6,950 and you are down $250 (5 units x 50 point decline).
  • You decide you do not want to lose too much more so place a stop loss at 6925, i.e. 75 points away from where you originally opened the trade.
  • The UK100 continues on its downward trend and hits 6,925 and your trade is automatically closed due to your stop loss order.
  • You have made a $375 loss on this trade.

What is a Guaranteed Stop Loss Order?

Mobile forex tradingA guaranteed stop loss order is very similar to a standard stop-loss, however with a GSLO, a broker will always guarantee to close your trade at the specified price that you have requested.

You may ask, ‘but aren’t all stop losses closed at my specified price‘? The answer is no.

Why? Well, quite often it is not possible to close out a trade at your specified stop loss due to market volatility.

Say, for instance, that Microsoft release a very poor earnings report and their share price drops from $250 to $245 in a heart beat. You had a stop loss at $248 so all is ok, right? Wrong! Your stop loss order has just been triggered at $245, not $248 and this means you have lost more than you expected.

With a guaranteed stop-loss, your stop loss is guaranteed. So, using the example above, your trade would have been closed at $248, as you requested, not at $245.

Best Brokers That Offer Guaranteed Stop Losses:

Broker     Website   Max. Leverage Regulations Min. Deposit    Spreads From Review
View Deal
200:1 $0 0.14 (Fixed)
Review
View Deal
500:1 $100 From 0 pips
Review
View Deal
400:1   $100 From 0.5 pips
Review

 

View Deal
500:1     $200 From 0.1 pips
Review
View Deal
400:1 $100 From 0.9 pips
Review

Why Use a Stop-Loss?

Stop losses are their to protect you and should form part of any trading plan.

Not only do they limit the losses on some of your trades, but they also offer peace of mind and comfort. They also mean you do not need to sit in front of a computer all day, or check your phone every few minutes – a stop-loss is an automated risk management tool!

Most traders will define what their maximum loss per trade will be, usually in terms of a % of the funds in their account. They will work out, say 1-2% of their funds on account and place a stop loss at that level to protect themselves.

Trading without a stop loss is usually a mistake and can become costly, particularly if you are new to trading. The financial markets can move fast and you do not want to be caught short, with large losses.

Normal Stop Loss vs. Guaranteed Stop Loss

They may sound the same but which one you choose can be the difference between losing all of the money on your trading account, or just some.

As a recap;

  • Normal stop loss: your stop loss is subject to market volatility and the execution price is not guaranteed.
  • Guaranteed stop loss: your stop loss will be executed at the requested price, no matter what.

The Verdict?

We would urge ALL traders to utilise stop loss orders in some shape or form.

If you are trading a financial instrument that isn’t that volatile and trades in low volume, then a regular stop loss is probably sufficient. However, if you are trading a highly volatile asset, like cryptocurrency for example, then you should always use guarantee stop loss orders.

Please note, regular stop losses are free-of charge, whereas guaranteed stop losses incur a small fee (which differs by broker).