Q.Dear Josh, how do stop losses work in relation to market gapping?
A.I think it’s very important to understand how stop losses actually work, particularly in reference to market gapping. There are key differences between a guaranteed stop loss and a standard stop loss. A standard one is free of charge but it only closes your trade at the first available price in the market after prices have traded through your stop loss. This can sometimes, depending on the volatility of the underlying market, be different to your stop loss level. For example, if you have a stop loss at 150p, and the underlying market gaps from 160p to 140p, your position is stopped out at 140p, as this is the first price available in the market. A guaranteed stop loss, however, ensures that your position is closed at the level you have requested, no matter what happens to the underlying market. For this additional protection you pay a small charge. This is a signif icant difference and is why I would always consider using guaranteed stop losses if you are concerned about your trading risk.
Q.Dear Josh, what companies will be announcing their earnings reports this week?
A.Although we have seen a number of firms announce their results, we are still in the middle of the UK earnings season so there is a lot to keep an eye out for. This week there is plenty to digest including reports from Antofagasta, International Power, Standard Life, Tullow Oil, Morrison’s, Home Retail and Old Mutual. There could certainly be a bit of volatility and opportunities in and around these reports. Be mindful that the more volatile a market, the higher your potential losses,
so consider a stop loss.
Q.Dear Josh, what is the most common spread betting mistake you come across?
A.It may sound obvious but the most common mistake I see is trading without a plan. Many traders place their bets without knowing where their exit points are. Lots of spread betters make impulse trades when they see markets moving and this can force their hand to open or close a position prematurely. Having profit and loss targets can help to reduce the chances of this happening.