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What is a guaranteed stop-loss order?

Q: What is a stop-loss order?

A stop-loss order is a market order that helps you manage your risk by closing a trade at a pre-determined price. It is an essential risk management tool and can be used to help you avoid excessive loss of capital. Besides a classic stop-loss order, trailing stop-loss orders and guaranteed stop-loss orders are also available to use. Find out more about stop-loss market orders .

Q: What is a guaranteed stop-loss?

A guaranteed stop-loss order, or GSLO, works the same as a standard stop-loss order, but for a small fee it guarantees to exit a trade at the exact price you want, regardless of market volatility or gapping. When market conditions are very volatile, market gapping (or slippage) can occur, which can results in your stop-loss order being triggered at a different price to what you set. Therefore, the use of guaranteed stop-loss orders is often recommended for regularly volatile markets that experience large price fluctuations. Visit our guide on how to place GSLOs as part of your risk management strategy.

Q: What is a trailing stop loss?

A trailing stop-loss order is similar to a standard stop-loss order, but moves with a positive trend movement, remaining at the distance specified when the order was placed, and will stay static during negative trend movements. A trailing stop loss can help a trader follow the classic mantra of ‘cut your losses and let your profit run’. A full synopsis of trailing stops can be seen in our ‘ What is a trailing stop? ’ guide.

Q: How do I set up a stop-loss order?

You can add a stop-loss order when placing a trade on an order ticket. You can choose between a stop-loss order , trailing stop-loss order or a guaranteed stop-loss order . Your choice of stop-loss order should be pre-determined in your risk management strategy. See more on how risk management is a key part of any trader’s strategy.

A guaranteed stop-loss order is a risk management order that is used to help you manage risks when trading the financial markets. Guaranteed stop-loss orders (GSLOs) work in the same way as stop-loss orders, with the main difference being that they guarantee to close out your trade at the price specified by you, regardless of market volatility or gapping.

This is especially useful when market conditions are volatile and prices move suddenly from one level to another, without passing through the level in between. Price gapping (or slippage) can occur following major market-moving events and news announcements or on weekends, when trading is closed.

Understanding guaranteed stop-loss orders

Unlike regular and trailing stop-loss orders, to add a guaranteed stop-loss order you will need to pay a premium called a 'GSLO Premium'.

The premium paid when adding a guaranteed stop-loss order on a trade is calculated as follows: GSLO premium rate x number of trade units. Find out more about GSLOs

If a GSLO is available for the instrument you are trading, the applicable premium rate as well as premium margin and minimum points distance can be found in the product overview area of our Next Generation trading platform. Please note, GSLOs are not available at all times and for all our instruments.

The premium will be charged when placing the GSLO, including where this is done by modifying another type of pending order. This cost is displayed as the ‘GSLO Premium’ under the estimated costs section on the order ticket when placing the GSLO. The GSLO premium will be refunded to you if the GSLO is subsequently cancelled before it has been executed. An additional premium is not required to modify an existing GSLO.

If you wish to place, modify or cancel a GSLO, you need to ensure that you have sufficient funds available in your account to cover any increase in position margin as a result. Failure to pay any GSLO premium due in full may result in your GSLO being rejected or removed. The GSLO margin requirement is shown as ‘Prime Margin’ under the estimated margin section on the order ticket when placing the GSLO.

Guaranteed stop-loss order example

Let's take the UK 100 as an example. You want to go long on the UK 100 and our current sell/buy price is 6,694/6,695, so you decide to buy one unit at 6,695. You are concerned about market volatility, so decide to safeguard your trade by placing a guaranteed stop-loss order at 6,650 to limit your losses should the market go against you. In this example, to place a GSLO on your one unit buy trade on the UK 100, the cost is £1 (1 GBP per unit).

An unexpected interest rate cut by the US Federal Reserve causes volatility in the markets overnight, leading the UK 100 to gap by 90 points. The following morning, the UK 100 opens at 6,604/6,605.

As you had placed a guaranteed stop-loss order, your trade closed out at 6,650, resulting in a loss of £45 (6,695-6,650 x 1).

If you hadn't placed the guaranteed stop on your position, your trade would have closed at the next available price, which in this case was 6,605. This means you would have lost £90 (6,695-6,605 x 1). Read more about our trading fees.

FAQs

What is a stop-loss order?

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