Spread Betting Trailing Stops
A trailing stop is a stop that moves up as a buy bet rises or down as a sell bet drops, keeping a set distance behind the current price. Many brokers and spread betting companies offer this automatic facility as a free service on selected markets.
Once you are comfortable with setting spread betting stop orders the next stage is to practice setting a trailing stop. Say you've placed a bet (with a stop of course) on a currency going up and it duly rises. You will then accordingly want to think about increasing the level of the stop so that if the currency does start sinking you will lock in some profit. Typically a trader will keep setting the stop at about 5 - 15% below the current price. In this way, as the price rises the stop level trails 5 to 15% behind. If your provider offers automatic trailing stops you don't need to keep reseting the stop; you just set your trailing stop at a set number of points above or below the price.
Spread betting trailing stop strategies:
Multiple stops
If you are not sure at what level to set a trailing stop, you could consider starting at 5% below. This would be a good way to minimize losses, but alternatively a more cautious 15% below would mean less chance of the position being closed too early as the share price meanders up and down on a general upward direction. The simple answer to this dilemma would be to divide your stake into two and set a 5% stop on one half and 15% on the other. The 5% trailing stop will trigger first. Half of your profit is banked and the other half remains on the market. Eventually the stock will breach your 15% mark and the bet is completely closed. This is a way of banking some profit whilst still keeping open the possibility of more gains. If your provider doesn't offer trailing stops you can do this manually by keeping an eye on the market and stopping the positions yourself.
Opening a position with a trailing stop
(n.b. This is a bit of an advanced technique so don't worry if you can't follow it. Just come back when you have a bit more experience).
When a share price drops by say 10% off a peak this is taken by some traders in certain situations as a sign of weakness, signaling further downward movement. This would be a good point to open a sell position, which you can do automatically with a trailing stop. If your broker offers a facility for trailing stops consider setting the stop to sell a greater stake than you actually have open at the time. So instead of just closing a position when it triggers, it actually opens up a down bet or a sell bet on the share. If the share follows the prediction and continues downward you will make money on this. You are basically setting things up so that you automatically change your long position to a short position when the stock shows a sign of weakness.
Which companies offer trailing stops?
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