Using Orders | Stop Loss

Opening the position

In July 2012, the price of Telstra Corp Ltd shares was $4.07.

You believe the price of the shares will rise and you decide to buy 500 shares as a CFD with a Stop Loss at $3.70.

Triggering the stop

If the share price rises, you can close your position for a profit.

However, Telstra’s share price took a downward turn in the afternoon and fell to $3.55.

Your Stop Loss is triggered at a level of $3.70 and subsequently closed, protecting your from further losses.

If you had not used a Stop Loss, you could have potentially lost $260 or more.

To calculate the net result of the transaction you also have to take into account the commission, plus the interest and dividend adjustments. Stop losses are a type of non-guaranteed stop which can help to manage your risk and do not incur any premium. You should be aware however that it may not be always possible to close your position at your selected level, for example overnight or when the market gaps quickly (known as 'slippage'). For example, the above position may have finished one day’s trading at $3.75, and opened the next day at $3.50. If this had happened, your trade would have been closed at $3.50, rather than at your $3.70 Stop. Slippage will be determined on a basis which we believe to be fair and reasonable. View a detailed example of these charges.

To ensure your position is closed exactly at your chosen level, you should opt for the protection of a Guaranteed Stop.

Opening the position

In August, BHP Billiton Ltd was trading in the market at $40.33/40.35. So you buy 1000 shares as a CFD at $40.35, the offer price, with a Guaranteed Stop.

Every chosen Guaranteed Stop needs  to be set at a minimum distance away from the current price. On most ASX 200 shares it is currently 5%.

You place your Guaranteed Stop at $40. This means that if the share price drops sharply, your exit price will be guaranteed at $40. Therefore, the most loss you are exposed to (excluding interest and dividend adjustments) is $350 ($40.35, the opening level, minus $40, the Stop level = $0.35: $0.35 x 1000 shares = $350).The standard commission rate on the transaction is 0.1% or $40.35 (1000 shares x $40.35 x 0.1%).

The premium for a Guaranteed Stop is also charged when the position is opened. In this case it is 0.3% or $121.05 (1000 shares x $40.35 x 0.3%). Remember this is a one-off charge: you can move the level of your Guaranteed Stop at no extra cost.

Triggering the guaranteed stop

The stock drops overnight, opening the next day at $38.05. BHP closed the previous day at $40.14, but now opens at $38.05. Your Guaranteed Stop is triggered and your position is closed at $40, even though the market never traded there.

You sell 1000 shares at $40. The commission on the transaction is 0.1%, or $40 (1000 shares x $40 x 0.1%).

Your loss on the trade is calculated as follows:

Without the Guaranteed Stop, you would have been fortunate in this example to close your position at $38.05, representing a loss of around $2300. To calculate the net result of the transaction you also have to take into account the commission and premium you have paid for the Guaranteed Stop, plus the interest and dividend. View a detailed example of these charges.

These adjustments are applied to positions with Guaranteed Stops in exactly the same way as to standard CFD positions (see our detailed CFD example).

The size of the position on which we may be able to offer a Guaranteed Stop may be limited and they are not available on all instruments. Please contact us for more information on the facilities available for any particular share.

Opening the position

Say you buy two Mini A$5 Australia 200 Cash contracts at 5350. Each contract equals  A$5 per point movement, so you are exposed to A$10 (2 contracts x A$5) of gain or loss per point movement. You decide to use a Trailing Stop with a distance of 20 points and a Step size of 10 points.

The Trailing Stop initially sits 20 points behind 5330, your opening price.

Immediately the Australia 200 Cash begins to advance. Our price has risen 10 points above your opening price to 5360 and your Stop level 'steps' up by 10 points to 5340 to re-establish a 20-point distance from the new market price.

The move north continues and a few hours later, Australia 200 Cash is trading at 5425.

You are now sitting on a potentially healthy profit, with your Stop waiting 25 points behind at 5400, having moved up automatically six times.

Triggering the trailing stop

A surprise announcement that China will limit the importation of Australian commodities suddenly sends the Australia 200 Cash plummeting and within minutes the Australia 200 Cash is trading back down at 5352.

Your Trailing Stop has kicked in and your position is closed 25 points below the recent high of 5425, still well above your opening price of 5350.

Your profit on the trade is calculated as follows:

To determine the net or overall profit on the transaction you also have to take account of any interest or dividend adjustments. View a detailed example of these charges.

If you had chosen to use a conventional Stop Order, your position would still be open, and you’d be looking at a relatively small paper profit.

In this scenario, unlike with a conventional Stop Order, you are able to profit from a volatile market.

In times of rapid market movements, please be aware that a Trailing Stop a type of Non-Guaranteed Order that  may not limit your risk. During volatile times, the market may move through your Stop, in which case we will exercise our reasonable discretion to determine when Non-Guaranteed Orders are triggered and the level at which they are executed.

Opening the position

It’s November 7, 2011 and Commonwealth Bank (CBA) shares are priced at $49. You believe they may rise, so you buy 700 shares as a CFD at $49.  Your position’s total value will be $34,300 (700 shares x $49), but with a margin requirement of 5%, you can open your position with a deposit of just $1715 (5% of $34,000).

You choose to place a Limit Order at $49.95. If the share price reaches or exceeds $49.95, this means your order will be triggered and subsequently executed. In this example, your position will be closed at $49.95 to give you a gross profit of $0.95 a share.

Triggering the limit order

Over the next few days the share price rallies to $50.14 before dropping to $48.39 on November 10. However, you were protected when the market turned because you placed a Limit Order; it was automatically triggered and your trade was closed at $49.95, realising a gross profit of $0.95 per share.

Please be aware that you would need to take into consideration the opening and closing commission charges, plus any overnight financing charges  and dividend payments to determine your net profit. View a detailed example of these charges.

A Limit Order is a type of Non-Guaranteed Order and it is important to understand that we will exercise our reasonable discretion to determine when Non-Guaranteed Orders are triggered and the level at which they are executed.