If you’re a novice in spread betting or any other form of trading, one of the biggest anxieties you probably have is losing money.
When you’re making profits, everything seems to be going well, but what would happen if your trades were to go in the other direction? For those who like to trade cautiously, they can make use of a range of tools which can minimise the damage done by a losing trade.
Traders of all levels of experience can use stop losses and limits to help put an end to any trades that begin to turn sour, but what exactly are these tools, and how do they work?
There are opening orders and closing orders that activate when they’re at a level that’s acceptable to you, all of which are worth using if you want to make sure you have enough money to trade with in the near future.
When opening a trade, you could choose from the following options:
- Limit Order – This automatically opens a trade at a better price than the current price of a market, but only if the market price reaches a certain level.
- Stop Order – This one instantly opens a trade when the price is worse than the current level a market is at, but only if the price is at a level you specify prior to trading.
As for closing a trade before any losses become too excessive, you could either:
- Activate a Stop Loss order. This will automatically close a trade at a higher price than the starting one when you’re first activated your trade. This can also be used straight away if your trade heads into negative territory.
- Use Contingent Orders, which come attached to some limit or stop orders.
- Consider Guaranteed Stop Loss Orders – they’re useful if trading in a volatile market and you’re more anxious about losing too much money than usual.
If you’re unclear on how to stop a trade when it’s acceptable for your finances, City Index has a range of aids in the form of videos and PDFs that explain them all in greater detail. Each of the above methods of stopping a trade can help to lock-in profits as well as make any losses more manageable.
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