Guaranteed Stop Loss
Definition
A guaranteed stop loss is a type of stop order that ensures a trade is closed at the exact price specified, regardless of market gaps or volatility. In exchange for this price certainty, brokers charge an additional cost or impose specific conditions. Whether a broker offers guaranteed stops, and on which instruments, can materially affect risk management decisions.
In Plain English
In plain terms, a guaranteed stop loss removes execution uncertainty. If the market moves suddenly or gaps past your stop level, the broker guarantees that your trade will still be closed at the price you set. This protection comes at a cost and is not available on all products or with all brokers.
How It Works
- You open a trade and choose to apply a guaranteed stop loss instead of a standard stop.
- You select a stop price that defines your maximum acceptable loss.
- The broker confirms that the instrument supports guaranteed stops.
- An additional fee or wider spread is applied for the guarantee.
- If the market reaches or gaps beyond the stop level, the broker closes the position at the exact stop price.
- The broker absorbs any loss beyond that price.
- If the stop is never triggered, the trade closes normally.
- Some brokers refund the guarantee fee if the stop is not triggered; others do not.
Why This Matters for Traders
Guaranteed stop losses provide certainty over maximum loss, which is particularly valuable during volatile events, market gaps, or overnight holds. For traders using leverage, this certainty can prevent outcomes where losses exceed expectations due to slippage. However, the added cost means guaranteed stops are not always appropriate, especially for frequent trading or low-volatility strategies.
Common Misunderstandings
- Guaranteed stops are free: they usually involve an explicit fee or wider spread.
- They are available on all instruments: availability is often limited.
- They replace all other risk management: position sizing and margin still matter.
- They eliminate losses: they only cap losses at a predefined level.
- All brokers offer identical guarantees: terms and costs vary widely.
How This Affects Broker Choice
Guaranteed stop loss availability is a meaningful broker differentiator. When comparing brokers, users should consider:
• Which instruments support guaranteed stops.
• The additional cost and how it is charged.
• Minimum distance requirements from the current price.
• Whether the fee is refunded if the stop is not triggered.
• Any exclusions during extreme market conditions.
From a monetisation and comparison perspective, guaranteed stop losses appeal to risk-conscious users and naturally support broker comparison pages that highlight protection features alongside costs.
Risks & Common Mistakes
• Overusing guaranteed stops without accounting for cumulative fees.
• Assuming guaranteed stops remove the need for prudent position sizing.
• Ignoring minimum stop distances that increase effective risk.
• Choosing brokers based solely on guaranteed-stop availability without reviewing costs.
• Assuming guarantees apply during all market conditions without checking exclusions.
Risk note: guaranteed stop losses cap exit price risk but do not prevent losing the amount defined by the stop, and added costs can materially affect trading performance.
Real-World Example
You buy an index CFD at 7,000 and set a guaranteed stop loss at 6,900.
• Overnight, unexpected news causes the market to gap down to 6,850.
• With a standard stop, the trade might close near 6,850.
With a guaranteed stop, the broker closes the position at exactly 6,900, limiting the loss to the predefined amount. The broker absorbs the additional loss beyond that level.
What to Check Before Trading
- Does the broker offer guaranteed stop losses on your chosen instruments?
- What is the additional cost, and how is it charged?
- Are there minimum stop distances or size limits?
- Is the guarantee fee refunded if the stop is not triggered?
- Are there exclusions during extreme market conditions?
- How is guaranteed-stop usage shown in trade history?
- Are terms clearly documented and easy to verify?
Related Concepts
Standard stop losses do not guarantee execution price.
Guaranteed stops eliminate slippage risk on exits.
Market gaps are the primary scenario where guaranteed stops add value.
Leverage magnifies losses, increasing the importance of capped risk.
Guaranteed stops complement balance protection by limiting exit price risk.
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Risk Warning: This website does not provide financial, investment, or trading advice. All information is for educational purposes only. Trading and investing involve substantial risk of loss. You should carefully consider your financial situation and consult with qualified professionals before making any financial decisions.