A guaranteed stop loss guarantees the worst case outcome for a share position and can reduce the effect of share prices gapping. The good news is, during the term of the GSL the protection holds regardless of what happens to the actual share price.

Let’s say you buy Oil Search shares for $4.60, and you place a stop loss at 2 per cent away from the share price at $4.51. Should Oil Search shares fall to $4.51, your stop loss will be triggered, closing you out of your trade. But let’s say that overnight, the price of oil fell sharply, and Oil Search opened significantly below its previous day’s closing price (this is called gapping). Since Oil Search did not trade at $4.51, but instead fell directly to $4.38, your stop loss would not have been triggered at $4.51. This means that you would be down significantly more than you’d bargained for.

A guaranteed stop loss will absolutely guarantee that you’re closed out of the trade at $4.51. For this reason, CFD firms will charge you a premium for using a guaranteed stop loss.

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