Guaranteed Stop Example

This simple example shows you how a Guaranteed Stop is used to provide absolute risk protection when you open your position.

Example: Selling GBP/USD with a Guaranteed Stop

It is the afternoon of 23 May and our rate for GBP/USD is 1.9822/1.9825. You decide to sell 1 contract (the equivalent of £100,000) with a Guaranteed Stop. Your position is opened at our bid price of 1.9822 minus 3 (the premium for the Guaranteed Stop) = 1.9819.

You decide to put your Guaranteed Stop at 1.9850. So the most you can lose on the position (excluding interest adjustments) is (1.9850 x £100,000) - (1.9819 x £100,000) = $310.

Suppose our rate has risen to 1.9844/1.9847 and you think sterling may go higher. Of course you don't have to wait for your Stop to be triggered, so you buy 1 contract at our offer price of 1.9847 to close your position. Your loss is (1.9847 x £100,000) - (1.9819 x £100,000) = $280.

Whether your Stop is triggered or not, no extra charge is made on your closing transaction. The full charge for a Guaranteed Stop is made on opening.

To calculate the overall result you also have to include any daily interest adjustments.