What is a guaranteed stop-loss order?
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 is refunded 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 6694/6695, so you decide to buy one unit at 6695. You are concerned about market volatility, so decide to safeguard your trade by placing a guaranteed stop-loss order at 6650 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 6604/6605.
As you had placed a guaranteed stop-loss order, your trade closed out at 6650, resulting in a loss of £45 (6695-6650 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 6605. This means you would have lost £90 (6695-6605 x 1).