Stop Orders And CFDs

The huge growth of CFDs and financial spread betting over the years has been mainly due to the advantages these trading products have over conventional share trading in terms of no stamp duty, no taxes on profits. That is because CFD trading do not involve any physical delivery of shares and spread betting is not considered trading but just betting.

These trading instruments are used by savvy investors to hedge positions so that in the event of market movements that are sharp on the long or short side, they are able to protect their core portfolio value and do not have to resort to distress sales. Considering that they also get the benefit of leverage for an extended period of time at margin rates that are quite low, CFD trading assumes great importance for them. Conventional share trading does not allow you the luxury of settling trades beyond two to three days and since CFDs have virtually no settlement period, they are flexible and smart investors have been known to hold positions for a long time based on their risk appetite.

However, CFD trading is not without its risks and if you as a trader are not careful about keeping appropriate stop losses, you can end up losing a lot of money. You need to be aware of the various types of CFD orders to be able to effectively trade CFDs.

Let us have a look at them as under:

Market Order

This is for placing a buy or sell order at the prevailing market rates.

Limit Order

This is for placing a sell request if the price is either the same or is above a specified limit price.

Stop Loss Order

This is the most important type of order as it enables you to get out of a losing position with some loss. The idea is to ensure that with increasing market volatility, you do not have to incur huge losses as can happen due to the leveraged position. Modern electronic trading systems allow such orders to be placed for CFD trading.

Guaranteed Stop-Loss Order

This order ensures that you do definitely get the price you want your CFD to be sold at so that in the event the market opens gap down, you still get your price. The order can even be placed at over phone and is a premium service.

The discipline to put a stop loss order is of utmost importance if you have to ensure that you do not make big losses.

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