Use Guaranteed Stops to limit your risk on stock index trades. You specify an absolute level at which your position will be closed should the market move against you.
When you use a Guaranteed Stop a premium is added to your opening price as risk protection. The Limited Risk premiums which apply to individual stock indices are listed in the Contract Details.
The margin requirement for a Limited Risk trade is equal to the amount which would be lost if the Stop were triggered.
Example: Shorting the Australia 200 with Limited Risk
You want to go short but are concerned about the possibility of a short-term rally.
Opening the position
It’s late August and our quote for the Australia 200 is 4465/4466. You decide to sell one contract with Limited Risk protection. (One contract is the equivalent of $25 per index point.) So your position is opened at 4465 (the bid price) minus 3 (the Limited Risk premium) = 4462.
Placing the Guaranteed Stop
You decide to put your Guaranteed Stop at 4525. So the most you can lose on your position (excluding interest and dividend adjustments) is:
Maximum possible loss
| Stop level | 4525 |
| Opening level | 4462 |
| Difference | 63 |
Maximum possible loss (excluding adjustments): 63 points x 1 contract x $25 per point = $1,575
Triggering the Guaranteed Stop
Over the next few days, steady falls for the Australia 200 prove your trade correct, but a change in market sentiment sees the index start to rally and our quote rises to 4550/4551. Your position is automatically closed out at 4525. You have lost $1575, but the Limited Risk protection has saved you from a bigger loss, potentially more than $2100.
To calculate the overall result of your transaction, you also have to include interest and dividend adjustments. Interest adjustments are applied daily to stock index trades in exactly the same way as to Share CFDs. Dividend adjustments are applied whenever a stock in the relevant index goes ex-dividend. For more information see Contract Details.