| |
| |
|
Stocks & Mutual Funds Information< brought to you by secured-credit-cards101 |
|
|
|
The Importance of Using Stop Loss Orders When Spread Trading the Financial Markets
A Guide to Using Stop Loss Orders Stop losses are market orders designed to allow you to limit your losses. When you place a stop loss you are instructing the spread betting company or stock broker to cut your position when it reaches a certain loss level (or in some cases, profit level - more later). Therefore, a stop loss will automatically close your trade if the market reaches a certain point. For example: You have bought 1 a point of the German DAX at 4200. The most you are willing to risk is 150 on this trade so you place your stop at 4050. If the market trades at 4050 you are taken out immediately and you lose 150. Normal Stop Losses These are free but with this type of stop you can sometimes lose more than you specified when you placed the order. Sometimes your stop loss order may not be filled at the level you wanted i.e. you may be taken out at 4046 instead of 4050. The bookmaker will attempt to get you out of the trade at the price you specify but when the market is moving very quickly it may not be possible. This is called "slippage" and tends to happen in a fast moving market. You can also lose more than you wished if the market you are trading "gaps". For example: You have opened a long trade on the Dow Jones for 1 a point at 10000. As you were willing to risk 200, you placed a stop at 9800. Over the next couple of days, the Dow moves down slightly to 9900 and at the end of trading on the third day it is sat at 9890. The next day some very disappointing economic figures are released and the Dow opens well down at 9700. As this is past your stop loss, the bookmaker closes your bet at market price. Your trade is closed at 9690, 110 points below your stop loss so your loss is now 310 rather than the 200 you were willing to lose. Guaranteed Stop Losses You can ensure you are closed out at the exact price you specify by using a Controlled Risk or Guaranteed stop loss order These types of stops are designed as a type of insurance to guarantee that your stop loss order is filled at the exact price you specify. Even if the market you are trading gaps 1000 points beyond your stop, if you are using a guaranteed stop loss you will still only lose what you have already decided is an acceptable loss. You pay a little extra for a guaranteed stop. In the Dow example above, a guaranteed stop would cost roughly 4 times the stake (4 x 1 = 4). Usually the premium is taken from your account balance when setting the stop loss level or is added to the spread. Although they do reduce your account balance, guaranteed stops can save you a great deal of money and are certainly recommended if you have a small capital base. Some Pointers About Stop Losses - Never move your stop if you think it may be hit. If you move the stop further down to try and avoid being taken out you will simply lose more money. - You don't have to close your entire position with a stop loss order. If you wish, you can set up 2 or more stops. For a 1 per point trade you could set a stop 100 points away which reduces you exposure by 50p a point. Another could be placed 200 points away to take you completely out of the trade. - It is better to let the stop take you out of the market and preserve the rest of your capital than to try and stay in the trade by moving the stop. - You can lock in profits by using a stop loss. If you were to enter a long trade on the Dow at 10000 with a stop at 9900 and the Dow moves up to 10200 you could then move your stop to 10100 to lock in 100 points profit. - Never trade without a stop loss, even if it is just a normal stop. To stay in the trading game you must preserve your capital and huge unexpected losses will certainly not help. See the Money Management section for more details. Ben Catt is an active financial trader and runs a free website containing hints, tips and information about tax-free financial spread trading and betting in the UK. The site can be found at http://www.FinancialSpreadTrading.co.uk. He also runs a business opportunity information site - http://www.BizOppsUK.com
MORE RESOURCES:
Stocks-Mutual-Funds - Google News |
|
|
|
RELATED ARTICLES
Time Out Are you paying any attention to your retirement savings? Do you have it in cash or an account with a broker? Maybe you have a professional manager who is investing your money as you add to it every month.Is your account increasing in value every year? If it isn't why are you letting anyone else invest for you? There is no point having a loser in charge of your money. Smart Day Trading Strategies to Help You Make Money in the Stock Market Stock trading can be a very profitable activity. You can make big amounts of cash in a short period of time. Understanding a Stocks PEG Ratio A PEG ratio cannot be used alone but is a very powerful tool when integrated with the basics (price, volume and chart reading). You must enjoy crunching numbers and have a calculator handy to estimate your own PEG ratio. A Personal Stock Market Investment Philosophy ∙ Make every investment in the stock market a long-term investment.My Mother worked as a teller in a small bank in Dover, New Jersey. Frog In The Pot You remember the story about the frog that was put into a pot of cold water on the stove. He was not concerned. Selling Strategies - Setting a Stop Loss Sometimes the best way of lowering exposure to risk is not to invest at all! However, when we make the decision to jump into the muddy waters of the stock market, its always a good idea to have a life jacket ready, just in case.We all have stories of that "must have" "can't lose" stock that looking back, we didn't really need to buy, and it definitely lost. Investment Capital Gains Have you bought any mutual funds this year or late last year while the market was doing its skyrocket thing? Last year it was hard to lose money. This year it has been easy. The 401(K): How The Insider Has Stolen Your Retirement! Mutual funds were moderately successful in creating a presence in the stock market until the advent of the investment retirement account and in particular the 401(k). Corporate insiders persuaded the federal government to allow for the 401(k) in lieu of offering employees the traditional pension. Quality Investment Information: Standing Firm In the Face of Opposition THERE'S SOMETHING TO BE SAID FOR standing firm in the face of opposition. Interestingly, most of the best stock decisions have come at times when the mainstream is saying precisely the opposite. Ignore Stock Market Talking Heads You should ignore analysts on TV, the radio, the newspaper and all other TALKING HEADS when it comes to investing! What stocks do they talk about? - The same old group, every day of every year - Why? Because they don't know any better, they are sheep like the general public, repeating what every economic textbook says and every other economist tells them to say. Everyday, the same companies are highlighted on the evening news -WHY?They aren't going anywhere. Patterns The Law of Chaos is the theory of random unpredictable action applied to the cosmos, mathematics, mechanics, almost everything. Those who believe it will definitely think the stock market is in chaotic state at this time. Mid-Cap Stocks: Asset Class with an Identity Crisis Much like the middle child, mid-cap stocks have long struggled to find their identity. Carved out from the upper echelons of the small caps and the lower end of the large caps, the mid-cap sector has a rough definition of stock with a market capitalization of greater than $2 billion, but less than $10 billion. Managing Investing and Stock Market Risks Reduce your investing and stock market risks by:Setting your sights on the long term, patiently riding with the ups and downs!If you have the time to be patient, you can benefit from time diversification. The more numerous good years for stocks outweigh the bad, pulling your return up. Investment Attorneys and Garbage Stocks How is it possible that trash Companies are posting less than expected results? Trash Companies are thought of by prudish investors as some of the safest stocks to own. Ask Warren in his Buffet of Essays on Corporate America. VooDoo Training For the Stock Market If you go to Haiti or other places in the Caribbean you may run into the Voodoo tradition of magic. There are long and mostly noisy rituals with the medicine man spouting words that bring great power and conjure up whatever it is the supplicant desires. The I Word is Coming to a Town Near You Hello Inflation, it has been awhile, I see you on your way back again. Inflation? What inflation? Oh things like; Energy, diesel fuel, Aviation Fuel, Gasoline, Natural Gas, Milk, Wheat, Corn, Beef, Poultry, Hogs, Soy Beans, Building materials, paper, housing, Auto Prices, Health Care, Insurance, etc. E-mini Day Trading - Day Trading for Beginners - Stock Market Timing Software I mean it when I say that. While plastic silverware is fine for picnics and parties, it is totally inappropriate in a surgeon's hand with an open brain in front of him. Bottoms Ups If you have talked to a stock broker or financial planner in the last few days I will bet they all agree that there are some great bargains out there and now is the time to start buying in anticipation that the market will go back up. You will also find agreement from the talking heads on CNBC and those talk radio station stock mavens. Different Types of Mutual Funds This is a guide to the different types of mutual funds. When it comes to investing in mutual funds, investors have literally thousands of choices. Mindset In 1960 an engineer working for a watch company in Switzerland discovered that a small crystal would vibrate at a constant rate. He found this was so accurate that it could be used to calibrate time so he took it to company management and said it would make an entirely new kind of watch that had no springs and no gears.
|
| home | site map |
| © 2006 |
