Shop Around for Minimum Stop Distances on Guaranteed Stops

I’ve had an on-off relationship with guaranteed stop orders, sometimes regarding the guarantees as invaluable and sometimes regarding them as too restrictive or simply unnecessary in a sufficiently diversified portfolio of spread bets. In these continuing uncertain and volatile times, those guarantees may be worth their weight in gold (if that’s what your trading).

Guaranteed stop orders come with a cost, not only in terms of additional spread or a fee, but also in terms of a minimum stop distance which is usually much wider than the minimum stop distance for a non-guaranteed stop order. These minimum guaranteed stop distances can vary a lot between different spread betting companies; for example the other day:

  • Capital Spreads was mandating a minimum guaranteed stop distance of 8.6 points on Barclays Bank shares priced at ~160p-per-share.
  • IG Index was mandating a minimum guaranteed stop distance of 20% or 32 points on Barclays Bank shares priced at ~160p-per-share.

In that particular case I would be inclined to place the bet with Capital Spreads, but it’s not always the case. In another example:

  • Capital Spreads was mandating a minimum guaranteed stop distance of 21 points on Heidelberger Druckmaschinen priced at 96-99.
  • IG Index was mandating a minimum guaranteed stop distance of 7.5% or ¬†7.5 points on Heidelberger Druckmaschinen priced at 96-99.

So in this second case I would be inclined to place the bet with IG Index.

The moral of the story is therefore to hold an account with more than one of the spread betting companies, so that you can shop around for the most appropriate place to place a specific bet.


Disclaimer: this posting is for general education only; it is not trading advice.