When trading on the stock market, you often come across instances where you issue a buy or sell order at a specific price, but when this order is executed, or 'filled', the price you actually receive may be slightly higher or lower. This is known as slippage.

Most Spread Bet brokers now offer their clients a way to eliminate slippage once and for all, in the form of a guaranteed stop loss or, as some Spread Betting companies call it, a controlled risk spread bet.

How Does a Guaranteed Stop Loss Work?

Say you decide to 'bet' $5 a point on the Dow Jones on close at 13,250, and place a normal sell stop loss to dump the position at 13,200. The next day there is a sudden implosion of profits that hits the opening of the New York stock exchange in the morning, dropping the Dow Jones down to 13,000. You'd be looking at a huge loss in the area of 250 points at $5 a point, as your sell stop loss at 13,200 is filled on the opening of business at around 13,000, so earning you the 250 points of negative slippage.

But if you had used a guaranteed stop loss at 13,200 then even if the Dow Jones had opened down 500 points, your stop would have been elected at 13,200 and not a point lower. This is a guaranteed stop or a controlled risk spread bet in action.

Clearly in certain circumstances a guaranteed stop loss is a massive advantage over a traditional one. But they are not free; your spread bet broker will charge you for using them.

The amount that the client is charged varies from spread bet broker to spread bet broker and from product to product, but in often in the region of 3 points added to the spread. If you want to use a guaranteed stop loss then you have to inform your broker when they will quote you their initial price, so they can add the cost to the two-way quote.

If you wanted to place a guaranteed stop loss then, instead of making the market 13,200-13,204, the spread bet broker would add 3 points either side to make the Dow Jones quote of 13,197-13,207.

Use guaranteed stops if you must, but realize that they cost money. Keeping trading costs down should be an imperative goal of all traders in the spread betting arena.