Examples

Opening the position

Towards the close of trading on 20 September 2011, BP is quoted at 415.1p-415.2p, and you buy 2000 shares as a CFD at 415.2p, the offer price, on a Controlled Risk basis.

Guaranteed Stops have to be set a minimum distance away from the current price. On most FTSE 100 shares for instance, it is currently 5%. You decide to put your Guaranteed Stop at 394.2p, slightly more than 5% away. Should the market move against you, your position would be closed at exactly 394.2p; even if, for example, the share is subject to large losses in a short space of time.

So the most you can lose on the position (excluding interest and dividend adjustments) is £420.

415.2p, the opening level, minus 394.2p, the Stop level = 21p

21p x 2000 shares = £420

The commission on the transaction is £8.30 (2000 shares x 415.2p x 0.10%) (see Commissions). A Controlled Risk premium is also charged when the position is opened. In this case it is 0.3% of the value of the shares, or £24.91 (2000 shares x 415.2p x 0.3%).

Triggering the Guaranteed Stop

Unfortunately, two days later there are sharp losses in US and Asian markets, and the next day BP opens much lower, and then continues to drop. On the open they are quoted at 392.0p-392.1p but your Guaranteed Stop is triggered and your position is actually closed at 394.2p.

Your loss on the trade is calculated as follows:

Without the Guaranteed Stop, you would have lost more than you did. Soon after the open the price fell to 390p, and your losses could have been more than £500.

To calculate the overall result of the transaction you would also have to take into account the commission and Controlled Risk premium you have paid, and the interest and dividend adjustments. These are applied to Controlled Risk positions in exactly the same way as to standard CFD positions (see our detailed CFD example).