Managing risk is a fundamental part of any trading strategy.
City Index offers a range of risk management tools on our trading platform to help you limit losses without capping potential profit. We have a series of seminars, available exclusively to City Index clients (and free of charge) to help build your CFD education. We strongly recommend taking advantage of all tools available, particularly in volatile markets.
Orders are flexible tools with which you can open or close trades. They are essentially instructions to trade. They can be valuable in minimising downside risk and can also be used to maximise your trading potential on any future price trends that you may foresee. City Index offers a range of orders to help you get into (and out of) positions at the price you want.
Trailing Stops are a powerful risk management tool, helping you to minimise potential losses, without setting a limit on your potential gains.A Trailing Stop is created by setting a stop order that ‘trails’ your position by a specific number of points. If your trade moves in your favour, the Trailing Stop moves with the market, executing only when the market moves against you by the set number of points.A Sell Trailing Stop would be placed a fixed number of points below the market price. As the market price rises, the stop price rises too, ‘trailing’ the market price by the specified number of points. Should the price fall, the stop price holds, and a sell order is submitted once the stop price is hit.Buy Trailing Stop Orders are the mirror image of Sell Trailing Stop Orders, and are most appropriate for use in falling markets.A Trailing Stop is more flexible than a fixed Stop Loss, since it automatically tracks the market’s price direction and does not have to be manually reset (as you would have to with a standard Stop Loss order).As with standard Stop Loss orders, Trailing Stops are not guaranteed – therefore in periods of market gapping your order may not be triggered at the specified price. Instead, your order will be triggered and your trade executed at the best available price our system can deliver you – it’s important to note that this price may be worse than the level specified by you.
A Limit Order is an instruction to buy or sell at a price better than the current available price. Limit Orders are used to lock in profits by closing a CFD trade once the market passes the trigger value you’ve set. This means that you are able to automatically close trades and cash in your gains if the market moves in the way you expect.
City Index clients can access a rarely offered Limit order that allows you to place orders to buy above or sell below the market. The order is triggered when the stock moves through that pre-determined point - similar to a conditional order in share trading.
A Stop Order is the opposite of a Limit Order: it is designed to limit losses on an open order by closing a losing trade at a worse price than the original purchase price. A Stop Order can also be used to open a trade at a lower price.
Stop Losses are used to reduce risk and limit potential loss by closing a losing trade once a market passes a trigger value set by you. This means that you are able to automatically close trades and cut your losses if the market moves against you, helping you to limit your downside potential. Standard Stop Losses are not infallible though: the order will close your trade at the best available price once the stop value has been triggered.
During times of volatility, the market might gap, and your closing price (the best price available) could differ from the trigger value you have set.
At City Index, we offer standard Stop Loss Orders freely across all markets on your trading account.
Guaranteed Stop Loss Orders are the most efficient risk management tools available. They work in the same way as standard Stop Loss Orders, except they guarantee to close your trade at the trigger value you have set, regardless of underlying market volatility and gapping. For this added insurance, Guaranteed Stop Loss Orders incur a small premium (debited from your cash balance), upon confirmation of the order, and minimum distances apply.
Please note that GSLOs are not available on all markets.
Limit loss and protect profits with OCOs. An OCO is essentially two orders linked to each other. When one order is activated, the other is automatically cancelled. This prevents the unused order from opening a new position.
CFDs allow you to short sell and potentially profit from falling market prices. As such they’re often used as a ‘hedging’ tool by investors (as ‘insurance’) to offset losses in their physical portfolios. For example, if you have a long-term portfolio you wish to keep, but feel that there’s a short-term risk to its value, you can use CFDs to mitigate a short term loss by ‘hedging’ your position. This way, if the value of your portfolio does fall, the profit from your CFDs offsets the losses, allowing you to retain your portfolio without any significant loss to its overall value.
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City Index is a trading name of GAIN Capital Australia Pty Ltd.
The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments. GAIN Capital recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets. It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com.au, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. GAIN Capital Australia Pty Ltd (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.