Is there a way I can be reasonably assured of preventing losses from increasing?

Posted By Robert On Thursday, January 16th, 2014 With 0 Comments

One effective way to prevent losses from increasing is through the use of stop-loss orders. A stop-loss is an order given to your broker, instructing a position to be closed in the event of a certain price trading. If, for example, a trader buys a SPI® contract at 2800, a stop loss order could be placed at 2780. If the
market fell to this level, the broker would automatically close the position by selling a SPI® contract at 2780 or at the next available bid price. This order would be given to the broker as “sell on December SPI® at 2780 on stop”.

Are there other ways of limiting risk?

A trader can also use a variety of options strategies to limit risk in a futures trade. A trader may, for example, buy a December SPI® and at the same time buy an ‘out-of-the-money’ December SPI® put option. This strategy protects the trader in the event of a significant fall in the market but still provides for a high return if the market were to rise.

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