Trailing stop Loss

Automatic trailing stop loss orders are not very common in CFD trading. A CFD trailing stop loss order automatically moves your stop loss up as the CFD you are on increases in value for long positions.

For those that are time poor and have better things to do with their time than watch their CFD trades all day you can find CFD brokers that manually move your stops for you when your price conditions have been met.

One such CFD broker is MF Global who will monitor your positions based on criteria you have set for trailing stop loss purposes.

For example you have entered a long position at $10.00. You tell your MF Global broker to trail a stop loss if the following conditions have been met:

Price hits $11.00 – move stop to $10.70
Price hits $11.50 – move stop to $11.20
Price hits $12.00 – move stop to $11.70

MF Global brokers in this instance will manually move your stops every time a new condition is met.

Guaranteed Stop Loss

Very simply this is a price the CFD broker will allow you to trade at irrespective of what happens in the market. They will guarantee you the price that you set. For this they charge an upfront premium as the CFD provider is taking on the risk in this scenario.

Guaranteed Stop Loss trading example

The current market is $10.00 and you are long. You believe the market has the potential to fall heavily the next day, so you take out a guaranteed stop loss to protect your position. Most CFD providers have restrictions on how close you can place your guaranteed stop loss (ie 5% away from the current price).

In this example we would place a guaranteed stop loss order at $9.50 to close our long order. Normally your CFD broker will charge a premium on this order of up to 5 times more than a standard order.

The market opens the next day at $8.00. Aren't you feeling good that you got a guaranteed stop loss order in? You have been saved and your order will be executed at your guaranteed price of $9.50, not the actual market opening price of $8.00.

Are guaranteed stop losses necessary?

If you trade at sensible levels of leverage and use reasonable stop losses then you probably don't need to increase your trading costs unnecessarily by using guaranteed stop losses. It's a personal choice but most professional traders are always looking to keep their trading costs down. It would be wise to ask other CFD traders if they use them and what their reason is behind using them.

Back to CFD Tutorial
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Secrets of trading CFDs

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