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Trailing Stop Orders

Posted By Robert On Thursday, December 12th, 2013 With 0 Comments

Your stop orders need not be static, and it is good practice to “lock in” some of your accrued profit when a spread bet moves in your favour. The golden rule here is to always move the stop level up on a long trade and down on short trade, so as to always reduce your risk. Rarely if ever should you be tempted to increase your risk by moving your stop level further away from the prevailing price.

You saw an example of a trailing stop order in action in the section – Trading Timescales and Styles, and here it is again to save you paging back to find it:

Position Trading

Below, you can see how I have opened the IG Index trading ticket for an existing open bet, with a view to trailing the guaranteed stop order as close as it will go to my break-even entry price. I attempted this feat purposely outside of trading hours to demonstrate the fact that all spread betting companies (not just IG Index) prevent you from moving your guaranteed stop orders – on which they are taking the risk – when the markets are closed. Had I attempted this change during market hours, or on a non-guaranteed stop order, I would not have received the warning that “You cannot move this Stop Level closer to the market level at this time”.

Example Ticket courtesy of IG Index

IG Trade Ticket

To save you the hassle of constantly monitoring your stop levels and trailing them manually, some of the spread betting companies including Capital Spreads, ETX Capital and IG Index allow you to indicate a stop order as a trailing stop that move upwards automatically at a set distance in line with the rising price (for a long bet) or downwards in line with the falling price (for a short bet).

In the ETX Capital partial trading ticket shown below, you can see how I have marked my stop order to trail the rising price of Beazley Group shares whenever the price moves by 10 points.

“Closing Orders” Ticket courtesy of ETX Capital (prices for demonstration only)

Beazley Group PLC

Less Risk Means More Trading Funds

One of the unexpected (for new spread bettors) effects of trailing a stop order is that on many spread betting platforms your available trading funds will increase as you reduce your risk. Try it for yourself by noting your available funds, then opening a new position with a stop order at distance of (for example) 20 points, then move the stop order ten points closer to the prevailing price, and then check your available funds again. It works slightly differently on different platforms, and it may depend on whether your position is already showing a profit or a loss, but it can be an effective way of rustling up some additional trading funds in an emergency when you think that your cupboard of available funds is bare.

Less Risk Means More Trading Funds

One of the unexpected (for new spread bettors) effects of trailing a stop order is that on many spread betting platforms your available trading funds will increase as you reduce your risk. Try it for yourself by noting your available funds, then opening a new position with a stop order at distance of (for example) 20 points, then move the stop order ten points closer to the prevailing price, and then check your available funds again. It works slightly differently on different platforms, and it may depend on whether your position is already showing a profit or a loss, but it can be an effective way of rustling up some additional trading funds in an emergency when you think that your cupboard of available funds is bare.

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