Setting Stops and Limits

If all the terminology we have discussed about limits and stops is a little confusing don’t worry, it is easier in practice. If you have an open position you can set a stop on-line which will catch your trade if it goes against you. You can then move your stop to lock in profit. You can also set a limit to close your trade at a target price for profit.

If you want to leave an order to open, you can often do this on-line and usually they are simply called “orders to open” which saves the confusing terminology of stops and limits. If you are doing this by phone, again the safest way is to just say that you wish to leave an “order to open” and leave the spread trading company to use a stop or limit order as appropriate – they will know which.

The same applies to phoning in your orders however, if placing an order by phone there are just a couple of things you need to be aware of.

First enquire what the minimum position size is where they will accept phone orders because it is sometimes larger than the minimum you can do on-line. This may be another consideration when choosing your trading company in the first place.

Different spread trading companies can operate orders in slightly different ways so take a good look at the trading companies website and if necessary, phone them an enquire how they operate both opening and closing orders. This can be particularly relevant if you like to operate with tight stops.

Orders can be set “good for the day” (GFD) or “good ‘till cancelled” (GTC). GFD means that the order will be cancelled when the market closes that day. GTC means the order will be in place until you decide to cancel or move it.

GFD = Good for the day
GTC = Good ‘til cancelled

You can often (but not with all companies) select either a “market” stop (sometimes called a “screen” stop) or a “quote” stop. A market stop relates to the market price but be a little careful here. The “market” you are dealing in may well be the Futures market and the stop will be triggered by the futures price – this is particularly applicable to Indices. When the market price hits your stop level the spread trading company will then look at the spread at that time and stop you out at the sell price if you are long or buy price if you are short.

A quote stop relates to the spread trading company’s sell price (if long) or buy price (if short). This is a more straightforward way to set stops as you will know exactly how much you will make or lose if you are stopped out. Not all trading companies offer this form of stop so you might want to check this point before opening an account – how important it is will depend on the way you want to trade.