Disclaimer: All information shared is solely for learning purpose and it does not constitute to a buy/sell call.
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As requested by many from InvestWhizz Telegram group on how to trade effectively with guaranteed stop loss, I have decided to post it as sharing to benefit more readers.
I have been using IG to place my trades and am not related to IG.
If you would like to open an account with IG, do private message me on telegram for me to refer you (both of us would receive referral benefit).
Steps on trading:
Step 1: Understanding your provider.
It is important to research and use a provider with strong financials/backing as we would not want to be facing any issues to our account/funding during a black swan event.
In this article, I would use IG as the provider for discussion. Visit: https://www.ig.com/ to access to IG.
IG is available both on web browser as well as mobile app.
Information on IG: https://en.wikipedia.org/wiki/IG_Group (listed in LSE)
Step 2: Understanding what is CFD (Contract for Difference).
Many people has the belief that CFD is highly leverage and dangerous. It is only true when you are trading without a guaranteed stop loss.
When a person trades without guaranteed stop loss, he/she would need to place an initial amount of capital known as initial margin to open a position (normally on the range of 5-15% depending on the volatility of the stock).
Once a trade is placed, any subsequent negative moves in the market would result in a need to top up the variation margin which is commonly known as “Margin Call“. This is where people normally gets stressed up when there is a margin call and lose their sleep/focus in case they over traded the stock.
In worst case scenario, the person would have his/her account wiped out or even go negative when there is a black swan event where market gap up/down against their positions.
On the contrary, by trading with guaranteed stop loss,
- Your margin placed is limited to the stop loss that you set (+ a small spread and cost in case stop loss is triggered)
- There would not be further cases of margin calls if you are not adjusting your stop loss anymore
- In the event of black swan event which goes against your position, the maximum you will lose is the guaranteed stop loss amount
- This would mean you would never lose more than the amount which you have initially set as guaranteed stop loss.
We like this in trading as it would mean more downside protection. The concept of lose small win bigger would work here.
- Lastly you don’t need a lot of money to trade CFD
In trading, always remember to look at reward to risk ratio. Only enter when your reward is at least more than 2x the risk you put in.
Step 3: Understanding the trading Platform
For IG, once you have logged in, on the left hand corner, you would be able to search for the instrument/product which you would like to trade (mobile: Android is on the top right corner, iPhone is on bottom mid)
For the below instance, I have selected “Singapore Blue Chip Cash $10”. To know more about the product, there is an “information icon” located in the right corner.
Important information about the “Singapore Blue Chip Cash $10” contract would be the following:
- Minimum size of the contract – 1 contract
- Contract size per point – SGD 10. Per point would mean 1.00 index point movement.
- Min guaranteed stop distance – 2 points. – we would not stop at 2, looking at the chart, stop should be 372 (~10 points from current price).
- Margin requirements – this would not be relevant if you are doing guaranteed stop loss.
In summary, I would need SGD 100 + “spread of 0.2” to open 1 contract of “Singapore Blue Chip Cash $10” with guaranteed stop loss of 372.
Note: The spread of 0.2 is mentioned in the information call out before placing the trade.
Generally, I would select “Deal” to place and execute my trade immediately. Alternatively you may select “Order” where trades would only be triggered when the price reaches the target (both should select guaranteed stop loss).
Step 4: Submitting your trade
We would need to bear in mind that every trade is a probability game where there are no 100% or sure win trades. As such, I would caution that we should not put all the money in 1 trade.
Below are the list of questions I would ask myself before placing the trade.
- Is this trade for long term or short term?
- Will I be losing my sleep if I enter the trade?
- Have I done my own due diligence and know what am I getting into?
- What are my entry and take profit levels?
- What is my conviction level after performing the necessarily technical & or Fundamental analysis ?
Once the trade is placed, I would normally let it run and look at it only when there are breaking news which may potentially have big impact on the profits of the trade.
In cases where I am deep in the money (earning unrealized gains), I would move my guaranteed stop loss to take profit levels. This would mean I am allowing my profits to now work harder for me without carrying any risks.
Do place your trade with a calm & clear mind and check it once before submitting the trade.
Past learning from myself/discussion with peers includes the following:
- Selected wrongly – clicked sell instead of buy
- Added 1 more “0” by accident – instead of buying 10 shares, it became 100
- Accidentally moved the stop loss and it got stopped out – accidentally dragged the stop loss level on chart
- My friend asked me to buy and I just followed without know when to buy/sell
- Bought or sold too close to the market close where the bid/ask spread becomes very wide!
- Bought or sold with too close of a stop loss and my trades kept getting stopped out.
- Adding more trades when I am in the money; and out of a sudden when market turned. As a result, margin call was issued as I have used “profits” to trade. Please note that this method is kind of dangerous and not advisable (unless you are pro/guru).
Hope the above helps.
P.s. Do take care and stay healthy in this difficult times of 2019 nCov Virus!
- Please wash your hands after touching items in public (i.e. Door handle, bus railing, money etc)
- Avoid touching your face as much as possible
- Avoid crowded place, see a doctor and wear a mask when you are unwell
- Request your employer to allow you to work from home when you are unwell. It is no longer seen as hardworking to work in office when you are unwell. Please do not spread virus to others 🙂
- Beware of fake news & fake goods (there are fake masks, fake sanitizes, fake wet wipes around). Do report them appropriately.
- Lastly, please do help others when in need. I can see many merchant making super normal profits at the expense of scarcity and fear.. This is outrageous and would attract negative Karma..
I have mentioned in earlier articles that any crisis would mean opportunity (危机 = 危险 和 机会）. Do stay alert as in times like this, there would be large arbitrage opportunities in the market due to extreme greed and fear.
(Should you make money out of it, do donate to charity/to people in need).
Thank you & may all of us ride through this storm together.