A stop-loss turns an open-ended loss into a planned one — but only if you understand what each type of stop can and cannot promise. This guide covers placement, honest costs, and the failure modes that catch people out.
What a stop-loss actually is
A stop-loss is an instruction attached to your bet: if the price reaches the level I name, close my position. It is how you decide the size of a loss before the market decides it for you (the basics of placing one are covered in how to spread bet). One detail matters enormously: an ordinary stop, once triggered, closes your bet at the next available price — not necessarily at your level. UK retail accounts also have two regulatory backstops: providers must close your positions if your funds fall to 50% of the required margin, and negative balance protection means you cannot lose more than the money in your account. Both are last resorts, not a plan.
Where to place it: the level that proves you wrong
A stop belongs at the price that proves your idea wrong — not at a round number, and not at a fixed £ distance from entry. If you are long because support has held, the trade is wrong when price breaks below that support, so the stop goes beyond it with room for normal noise; shorts mirror this above resistance (see technical analysis).
The money you are willing to lose still matters, but it sets your stake, not your stop: risk = stop distance × stake per point. Comfortable risking £100 with a 50-point stop? Bet £2 per point. If the numbers do not fit, shrink the stake — never the stop distance. Our risk management guide builds position sizing from this one rule.
Ordinary, trailing and guaranteed stops — and what each costs
An ordinary stop costs nothing extra and works well in normal conditions, but it can slip: in a fast or gapping market you get the next available price, which may be far worse than your level.
A trailing stop follows the price at a distance you choose when the market moves your way, and never moves back — useful for letting winners run. When hit, it executes as an ordinary stop, so it can slip too, and set too tight it will be triggered by routine wobble.
A guaranteed stop always fills at exactly your chosen level, whatever happens, in exchange for a wider spread or a premium. It is the only stop that truly caps your worst case.
Slippage and gapping: a FTSE 100 example
Suppose the FTSE 100 trades at 10,650 and you are long at £2 per point with an ordinary stop at 10,600 — planned risk 50 points, or £100. Bad news breaks over the weekend while the market is shut. On Monday the index opens at 10,450: it never traded through the 10,500s, it simply gapped. Your stop triggers at the open and fills near 10,450 — a 200-point, £400 loss, four times the plan. A guaranteed stop at 10,600 would have closed the bet at exactly 10,600 for the £100 you budgeted. Slippage is the smaller everyday version: in fast markets, fills land a few points beyond the stop. More worked numbers are in our spread betting examples.
When a guaranteed stop earns its cost
The wider spread or premium is a real cost, so pay it where gaps are a real threat: individual shares held through earnings announcements, any position held over a weekend, scheduled events such as rate decisions or elections, and thin or volatile markets. If the premium looks expensive, that is usually the market telling you the gap risk is genuine. A fair test: if the gap scenario above would do damage you cannot comfortably absorb, either pay for the guarantee or do not hold the position.
The cardinal sin: moving a stop further away
Everything on this page can be undone by one habit: watching price approach your stop and dragging the stop out of the way. That converts a small, planned loss into a large, unplanned one, and it is less a technique than a refusal to be wrong — see trading psychology. Tightening a stop, or trailing it behind a winner, follows a plan; widening one abandons it. Decide the exit before you enter, and then let it do its job.
Before every bet, complete this sentence: "I am wrong if the price reaches ___, and being wrong will cost me £___." If you cannot fill in both blanks, you are not ready to place it.
The rule that outranks every guide: never bet more than you can afford to lose.
Risk management →