Using a Controlled Risk Bet

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Controlled Risk Bets (CRBs) enable you to place a stop order at a predetermined level in order for you to guarantee your maximum loss. Therefore you have a known ‘worse case scenario’ should the market move against you which acts as an insurance. As CRBs are guaranteed (unlike stop losses) there is a premium to pay for this type of order.

  1. 123 Plc is trading 445.25 / 448.75. You decide to go long £10 per point at 448.75
  2. You want to place a stop loss so that your maximum loss if your position moves against you will be £350. Therefore you place a stop loss at 410.25 (350 / £10 = 35 points below the sell price)
  3. If the price of 123 Plc moves below your stop loss of 410.25 then your position will automatically be closed out and you will make a loss of £350
  4. If the price of 123 Plc falls to 300.00 overnight due to a profits warning you will still be closed out at 410.25 as you have paid a premium to be stopped out. A normal stop loss would have taken you out at 300.00 thus incurring a £1487.50 loss.

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