How To Use Stop Orders

Opening a position

On the morning in question, Singapore Airlines shares are trading at 10.86/10.88.

As you expect this to rise, you go long on Singapore Airlines by buying 1500 shares at $10.88.

In case your prediction is proven wrong, you limit your risk by placing a stop loss order at $10.80.

Triggering the stop

Over the course of the day, the share price of Singapore Airlines falls, ending the day at $10.82.

When the market opens the next day, the share price has dropped further, to 10.74/10.76.

As your stop was Non-guaranteed, your position is closed at $10.74. Had you paid the premium for a Guaranteed Stop, your position would have been closed at $10.80.

The loss on your CFD trade is calculated as follows:

Although you experienced 'slippage' overnight – with the position closed at a worse level than your stop – if you hadn’t had the stop in place your losses could have been much higher. Over the following day the share price of Singapore Airlines falls further, to $10.68. Had you closed your position at that level, you would have lost $300.

Opening a position

As the end of the trading day approaches, BP is priced at 415.1p-415.2p. Anticipating a rise in this price, you buy 2000 shares in BP as a CFD at 415.2p, the offer price. You decide to manage your risk by placing a Guaranteed Stop on your position.

Guaranteed Stops can only be set a minimum distance from the current price. On most FTSE 100 shares such as BP, that minimum distance is currently 5%.

You place your Guaranteed Stop at 394.2p, slightly over 5% away. If the market were to move against you, your stop would be triggered and your position closed at exactly 394.2p, regardless how severe the market movement against you.

With the Guaranteed Stop in place, your maximum potential loss on the position (excluding interest and dividend adjustments) is £420.

415.2p, the opening level, minus 394.2p, the stop level = 21p
21p x 2000 shares = £420

The commission charged on the position is £8.30 (2000 shares x 415.2p x 0.10%). See commissions for more information.

Placing the Guaranteed Stop also incurs a charge. In this instance it’s 0.3% of the value of the shares, or £24.91 (2000 shares x 415.2p x 0.3%).

Triggering the guaranteed stop

Unfortunately, market events work against you, and BP opens much lower a few days later, and continues to drop.

When the market opens the stock is quoted at 392.0p-392.1p but your Guaranteed Stop triggers and your position closes at 394.2p.

The loss on your CFD position is calculated as follows:

The Guaranteed Stop protected you from higher losses, as the price fell to 390p, meaning that you could have lost over £500.

To calculate the overall loss on the trade you would have to account for the commission and controlled risk premium you’ve paid, and any interest and dividend adjustments there may have been on the stock while your position was open.

These considerations apply to controlled risk positions just as they do to standard CFD positions (see our detailed CFD example).

Opening a position

EUR/USD is trading at 1.4002-1.4003, which you consider low, so you buy two EUR/USD contracts at 1.4003 in anticipation of a rise.

Your two contracts expose you to a $20 loss or gain per point movement ($10 per point movement). You decide to place a Trailing Stop on your position with a distance of 30 points and a step size of 10 points.

When the position is opened at 1.4003, the stop sits at 1.3973, 30 points behind the offer price.

The value of the euro then rises against the dollar, to 1.4013-1.4014 (10 points above your opening price). As your step size is 10 points, your stop mirrors the increase and also steps up 10 points to 1.3983, returning it to a 30-point distance from the market level.

EUR/USD climbs further, reaching 1.4068-1.4069.

In response, your stop also moves up a further five times. You now sit on a nice potential profit, with a stop waiting 35 points behind, at 1.4033.

Triggering the trailing stop

The up trend ends abruptly, with EUR/USD falling to 1.4010-1.4011.

Your Trailing Stop kicks in at the last selected level, 1.4033, still well above your opening price of 1.4003.

The profit on your CFD position is calculated as follows:

Had you placed a traditional Non-guaranteed Stop rather than a Trailing Stop, your position would not have been stopped out, and your profit would have been far smaller.

Non-guaranteed Stop orders, including Trailing Stops, may not limit your risk in times of market volatility, when the market may move through your stop causing 'slippage', that is that your order may be filled at a price below your stop level.

Opening a position

As you expect the price of Spot Gold – trading at 1619.93/1620.43 – to rise, you buy one standard contract at 1620.43. One 100 oz contract equates to $100 per full point.

You decide to place a Limit order at 1670.43, meaning that if the price of gold reaches or exceeds 1670.43, your position will be closed, realising the profit of $100 per full point.

Triggering the limit order

As you predicted, the price of gold does indeed rise, to 1672.34, before falling back to 1644.28. Your Limit order protected your trade from the impact of the market turning, as it was triggered and your trade subsequently closed at your level of 1670.43, realising a gross profit of $100 per full point.

To calculate the net result on the transaction you would also have to take into account interest adjustments. There is no commission to pay on any of our Commodity CFDs.

As a Limit order is not guaranteed, we determine when they are triggered, and at what level.