LONDON, October 19, 2011 /PRNewswire/ --
By using a stop loss, a trader can limit their potential downside on a particular trade. For this reason, stop losses are seen as an ideal tool with which to minimise trading losses. However, they can also be used to secure profits. Joshua Raymond of City Index (http://www.cityindex.co.uk/) explains how.
"When the market is in a firm upward trend you should adjust your stop loss as you keep racking up profits," states Chief Market Strategist Mr. Raymond. "This way you are removing the potential to net a loss in the trade, as long as your stop is guaranteed, of course."
For example, imagine you bought £2 per point of the Wall Street Index at 10100, and saw the index quickly rise to 10200. You could place a stop order at 10102 to ensure you at least broke even, or you might move your original stop loss upwards to 10150, ensuring a profit of at least £100 (10150-10100 x £2) while giving your trade room to run into potentially even greater profit. If the index continued to rise, you could move your stop loss upwards (or "trail") once more, locking in an even larger accrued return.
Remember, if the market is particularly volatile, standard stop losses can fall victim to market gapping. Guaranteed stop loss orders ensure your trade will be closed out at your chosen level regardless of the activity around it.
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About City Index
Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.
As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, spread betting.
We constantly look to improve the performance of our platforms and expand our range of services. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. For more information, visit http://www.cityindex.co.uk/.
SOURCE City Index