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Are Guaranteed Stop Losses Worth The Cost?
Sadly the answer to this question can only be correctly answered with hindsight.
If you knew a potential big (and damaging) move was coming then perhaps using a guaranteed stop loss would have been the thing to do. But you never know this kind of information beforehand.
The best possible way to answer the question is perhaps to look at whether the professional and experienced spread traders use guaranteed stop losses. The answer is definitely NO. The experienced spread better realises that on any given trade the market can move significantly against his position but this doesn't happen very often.
So they take the view that in the case of the FTSE 100, the saving of the extra 3 points overtime will go a long way to paying off the very occasional large move against their position. Professional traders also realise that the cost of doing business is one of the keys to success in trading and therefore any costs that are added to the process will likely have a detrimental effect on their profit & loss over the long run.
Mega Positions & Guaranteed Stop Losses
However there is one kind of trade where guaranteed stop losses do make a lot of sense. Occasionally you may elect to trade a position in a market that's far larger than your normal trading size.
Perhaps you normally trade the FTSE 100 at £3 a point but today place a spread bet at £20 a point. In a situation like this a guaranteed stop loss is often a shrewd move because you'll know the maximum loss possible and an adverse unexpected price move will not completely wipe out your account.
Summary on Guaranteed Stop Losses
Use guaranteed stops if you must, but realise that they cost money and keeping trading costs down should be an imperative goal of all traders in the spread betting arena.
