Are you a spread bettor who spends hours in front of your trading screen, manually waiting for the perfect moment to place a trade? Or are you more laid back—perhaps busy with a day job—reviewing potential trades in the evening or over the weekend and setting up automatic opening orders to go long or short when the price hits a predetermined level? If you fall into the latter category, it’s worth considering the risks associated with this approach.
No Guarantees
Unlike closing stop-loss orders, opening orders lack the safety net of guarantees. Most spread betting providers won’t offer guaranteed execution for opening orders. This means you have no control over whether your position opens at the higher or lower price when the market gaps overnight.
An Open and Shut Case
To make matters worse, if your opening order includes a contingent “if done” stop-loss order, you could face a frustrating scenario: being bought in at the higher price, only to be sold out at the lower gapped-down price. Unfortunately, this isn’t hypothetical—it’s happened to me, and it could happen to you.
While I’ve occasionally succeeded in arguing my case with the spread betting provider and receiving some compensation for this unfair outcome, it’s not a guarantee. Providers can justify their actions if the spread widens significantly, making your buying and selling prices simultaneously valid.
To Use or Not to Use?
After experiencing the pitfalls of opening orders, my preference is to open new positions manually based on a firm quote and then let them close automatically via stop orders. However, this isn’t always practical, especially for those managing multiple positions or for traders who pyramid into positions at minimal risk when an existing position nears its stop-out level.
De-Risking Opening Orders
While there’s no foolproof solution, there are strategies to minimize the risks associated with opening orders:
- Stick to Non-Volatile Instruments: Consider using opening orders only for instruments with historically low volatility. However, even previously stable stocks can experience unexpected shocks.
- Use Small Position Sizes: The simplest way to limit risk is to use smaller positions for opening orders. If the order doesn’t execute at your desired price, the financial impact is reduced.
- Scale Into Positions: To avoid being limited by small position sizes, consider scaling into positions over time through pyramiding. While the exact entry price can’t be guaranteed, you can rely on guaranteed exit prices—albeit at an additional cost.
Final Thoughts
While opening orders can be a useful tool, they come with inherent risks that traders should carefully consider. My own experiences have taught me the importance of balancing convenience with control. By adopting strategies to de-risk opening orders, you can better navigate the uncertainties of spread betting while maintaining a disciplined approach.
