The CleanFinancial.com guide to Trailing Stop orders.
- Why Use a Trailing Stop Order
- Trailing Stop Example
- Firms That Offer Trailing Stop Orders
- Trailing Stops are not Guaranteed
Like Financial Spreads and Capital Spreads, ETX Capital has introduced trailing stop orders to its CFD and spread betting accounts.
In a move that’s estimated to be widely welcomed by the company’s clients, ETX will now let clients place trailing stop orders.
Why Use a Trailing Stop Order?These orders help clients lock in their potential profits when they are trading erratic markets.
This means that they can help investors manage their CFD and spread betting profits, as well as the many associated risks, more effectively.
Through a Trailing Stop Loss clients can ‘trail a stop’ behind an open position.
The use of a Trailing Stop keeps a stop loss at a specific percentage/point below or above the market.
A trailing stop loss isn’t static, it will continuously change based on market fluctuations.
Trailing Stop Orders – ExampleIf an investor were to buy the FTSE 100 index at a 5934-5935 with a trailing stop distance, set by the client, of 25 points then the stop loss order will be placed at 5910. The trailing increment, set by ETX, would be 20 points.
If the FTSE 100 index were to then increase to 5974/5975 the stop loss would also move higher by 40 points to 5950 and it would continue to move higher for every 20 point move upwards.
If the market in question were to slump and it fell back to 5934/5935 then the trailing stop loss would have been activated and the trade would be closed at 5950.
Firms That Offer Trailing Stop OrdersThe following spread betting companies let you apply a Trailing Stop to your trades:
Trailing Stops are not GuaranteedNote that a Trailing Stop typically works like a normal Stop Loss and not like a Guaranteed Stop Loss.
Therefore Trailing Stops are subject to market slippage i.e. gaps.
Spread betting and CFD trading carry a high level of risk to your capital and you may lose more than your initial investment. Spread betting and CFD trading may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.