Risk Management
To help limit the liability of an open position from downside risk, our trading platform has a built-in auto stop function. The algorithm analyses current market volatility and places a stop loss at an intelligent level. It is important to understand stops so let's go through an example below:
Suppose the UK 100 index opens lower on the morning, and our quote is 3943 / 3946. You think the index will sink lower and sell £2/point at 3943 to open a position. Our trading platform places an auto stop at 4074 to limit your liability from adverse price movement.*
While you are busy at work during the day, the index rallies to 4150 / 4153. Your auto stop has been triggered at 4074 and your position closed with a loss of £2 x (4074 - 3943) = £262. Note that, without the auto stop, you would have lost more than you did. Had you not closed the position until the price rallied to 4150 / 4153, your loss would have been £2 x (4153 - 3943) = £420.
*Note that not all stop orders are not guaranteed and in the event of an adverse market gap you could get a fill worse than your stop level. This is commonly known as 'slippage'.