Why should you be wary of auto-stop loss orders?

A lot of spread betting providers hold up auto-stop loss orders as a great way to help protect clients and demonstrate their commitment to minimising your losses.

While every sane spread betting should be using stop and limit orders as part of their trading strategy and to help mitigate trading risk, it’s worth being aware that auto-stop losses aren’t always a good thing.

Auto-stop losses can actually take away your potential profits by locking you out of your trading positions before you’ve had a chance to really run your position. Let’s go through a typical trading scenario with auto-stop losses provided by the spread betting firm to get a bette feel for this.

You start by putting through your trade oder, and opening your position. You check your current orders on your trading interface and you’ll notice there’s a stop loss put in place automatically, if you look a bit closer, you’ll see that it’s quite close to your current position.

Over the next couple of hours, the market fluctuates, and BANG you’ve just been closed out of your position by the auto-stop loss. You’ve just lost before you even got a chance to let your trading hunch properly play out.

Having auto-stop losses in place is probably better than not having any safety next for careless and lazy traders, but for people who are willing to think out their trading approach a bit more strategically, they can limit your flexibility and take away potentially lucrative trading opportunities. Keep this in mind when you are next presented with an impassioned argument from spread betting providers about the great benefit of this service.

“Don’t just believe that using strategically placed stops is the answers to all your concerns. This would be simplistic and there is a lot more to risk and proper money management, trading plans and timing, than simply being able to place stops at the right places!.”