Use Guaranteed Stops to limit your risk on stock index CFD trades. You specify an absolute level at which your position will be closed should the market move against you.
When you use a Guaranteed Stop a premium is added to your opening price as risk protection. The Limited Risk premiums which apply to individual stock indices are listed in the Contract Details.
The margin requirement for a Limited Risk trade is equal to the amount which would be lost if the Stop were triggered.
Example: Shorting Wall Street with Limited Risk
You want to go short but are concerned about the possibility of a short-term rally.
Opening the CFD position
It is 23 June 2009 and our quote for Wall Street is 8300/8304. You decide to sell one contract with Limited Risk protection. (One contract is the equivalent of US$10 per index point.) So your position is opened at 8300 (the bid price) minus 4 (the Limited Risk premium) = 8296.
Placing the Guaranteed Stop
You decide to put your Guaranteed Stop at 8376. So the most you can lose on your position (excluding interest and dividend adjustments) is:
Maximum possible loss
| Stop level | 8376 |
| Opening level | 8296 |
| Difference | 80 |
Maximum possible loss (excluding adjustments): 80 points x 1 contract x US$10 per point = US$800
Triggering the Guaranteed Stop
Steady falls for Wall Street prove your trade correct, but on 25 June 2009 the index rallies and our quote rises to 8480/8484. Your position is automatically closed out at 8376. You have lost $800, but the Limited Risk protection has saved you from a bigger loss, potentially more than $1880.
To calculate the overall result of your transaction, you also have to include interest and dividend adjustments. Interest adjustments are applied daily to stock index trades in exactly the same way as to Share CFDs. Dividend adjustments are applied whenever a stock in the relevant index goes ex-dividend. For more information see Contract Details.