This brings me nicely to the subject of closing and opening spread betting orders. Once you have opened a trade you may want to set an order to close your trade at a set level either for profit or loss. Alternatively, you may have studied a share chart and decided that if the price hits a certain level the next day, you will want to open a trade as we have just seen in the above paragraph.
If you have all day to keep a close eye on the price, you could do this manually. The safer alternative is to place an order with the trading company. This can be done with a “stop” order, often referred to as a “stop loss”, or a “limit” order.
Now you would be forgiven for thinking that this seems a fairly easy task but the trouble is that traders like to have some options around setting closing and opening orders, so there is more to this subject than you first think.
I promise you that when you eventually get to grips with “orders” (and you will) it will suddenly appear very easy in practice. So grit your teeth and read on. Please re-read this a few times if you wish because understanding it can save you money later.
Stops and limits are the two types of order and they essentially do the same job. They both can open AND close trades; it is just the terminology that is different and exactly when you use each in practice.
“A ‘stop’ order is used for a price that is worse for your position than the current price..A ‘limit’ order is used for a price that is better for your position than the current price.”
In the past it used to be that orders to close an existing position can be placed on-line whereas orders to open a trade usually had to be phoned in. Now it is very easy to place orders to open trades on-line and you can even place a stop loss at the same time so that if the trade opens it will automatically have your stop loss (or order to close) in place. Check with your trading company for availability.
If you do have to phone in an order to open you can also leave a stop loss at the same time. We will look at some examples later.