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Thursday, August 8, 2013
Guaranteed Stops risk management
Providing protection from sharp market movements against you, a Guaranteed Stop on your position ensures it will be closed at the price you state, with no slippage.
The security and peace of mind of a Guaranteed Stop incurs a small cost, referred to as our Limited Risk Premium. Effectively an insurance premium, this cost has been reduced to start from just 0.8 pips on forex products.
The reduced pricing structure of Guaranteed Stops is as follows:
Forex - From 0.8 pips
Shares - From 0.3% of the transaction value
Indices - From 0.1 points
Commodities - From 0.2 points
The margin requirement for Limited Risk trades – those with Guaranteed Stops – is equal to the value at risk if the Guaranteed Stop is triggered, plus 10% to cover any holding costs, for example funding or dividend requirements.
In this respect, the margin shown in the Deal Ticket confirms not only the margin requirement, but also the potential loss of the trade due to market movements. This is displayed in the relevant underlying currency and your preferred currency, in a clear, transparent and upfront manner.
Guaranteed Stops can only be added to the trade when it is opened, and you are free to change the level of the Guaranteed Stop until the trade is closed.
Bear in mind that you are also responsible for retaining sufficient funds in your account to cover incidental costs for funding and holding positions overnight, for example, and interest and dividend adjustments, should these apply.