Risk Management Tools

Risk Management Tools

Particularly if you are new to spread betting, it is possible to make substantial losses as well as substantial profits. Our risk management tools allow you to manage your liability without restricting your profit potential.

Controlled Risk

Controlled Risk bets make it possible for you to put an absolute limit on potential losses. You can choose to open your position as a Controlled Risk bet by adding a Guaranteed Stop to it. This means that you specify a level at which you want your bet to be closed, should the market move against you. We then guarantee your position will be closed at this level, even if the price changes suddenly.

There is an extra charge for this protection, in the form of a Controlled Risk premium, which is added to your opening price. Your position is closed at our standard 'buy' or 'sell' price.

Unlike our non-Guaranteed Stops, bets with Guaranteed Stops are not subject to 'slippage', even in volatile markets. Slippage is defined as the difference between your specified Stop level and the price at which your order is transacted.

Converting an open bet to Controlled Risk

You can normally 'convert' an ordinary open bet into a Controlled Risk bet at any time. You will need to call one of our dealers to do this. When you convert an open bet, the existing (non-Controlled Risk) bet is closed at the current market level, and a new Controlled Risk bet opened at the same market level plus or minus the Controlled Risk premium.

In effect you are just paying the Controlled Risk premium to convert your bet. The normal closing spread is charged when this new Controlled Risk bet is subsequently closed.

'Rolling' a Controlled Risk bet

When a Controlled Risk bet is rolled over, we will, unless instructed otherwise, place the Stop on the new bet at the same market level as the Stop on the expiring bet.

If there is insufficient money on the account to allow this to happen, the Stop will be placed as far away as the funds available allow.

Trailing Stops

Our Trailing Stops track your profitable positions automatically – and close your trade should the market move against you.

This type of Stop Order prevents you having to monitor and move your Stops constantly. You set the conditions for your Stop to move automatically, should the market move in your favour. Trailing Stops can be used on long or short trades, helping you to secure your gains as the market moves. We offer Trailing Stops on forex bets, plus a range of global indices and commodities.

How does it work?

When you open your position you specify two numbers:

• Stop distance – how far away from the opening level your Stop is placed
• Step size – the size of the increments by which the Stop can move

Trailing Stops can be added when placing a trade, or attached to open positions at a later stage. Please note they are not 'guaranteed', but may be subject to 'slippage' in liquid or fast-moving markets.

Setting up Trailing Stops

There is no charge for setting a Trailing Stop. You must, however, first activate Trailing Stops for your account on PureDeal. To do this, simply:

• Go to Preferences (in My Account)
• Select 'Allow Trailing Stops'
• Accept the special terms and conditions
• Click 'Set Preferences'

You will now find a Trailing Stop check-box on your Deal Ticket for selected forex and indices.

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Hedging

Hedging is a means of limiting risk. For example, investors can 'sell' a share with IG Index, in order to guard against the risk that the price of that share may fall, without actually liquidating their holding.

Covering your risk through IG Index works out very much cheaper than actually selling all or part of your portfolio. Stock market dealing costs can be heavy when you take account of the broker's commission and the market-maker's turn. Another disadvantage of selling shares directly, if you are selling them at a profit, is that you can incur Capital Gains Tax.

But remember, hedging is a defensive move. It is likely to eliminate, as long as the hedge lasts, any profit to be made on a share you are hedging – if your share goes up you will probably lose money on your 'sale' with IG Index.

Other ways to limit your risk

We offer a full range of non-Guaranteed Stop and Limit Orders to open and close betting positions. These are available both by phone and online, giving you the freedom to control your betting portfolio even while you are away from your desk.

Certain types of bet will place an absolute limit on your risk. For instance, when you 'buy' a traded option your potential loss is fixed at the outset. Likewise, any binary bet carries a strictly limited liability while giving you the chance to make high short-term gains.

To find out more about how you can benefit from risk management, take a look at our Risk Management Using Stop Orders pre-recorded seminar.