Spread betting and CFD trading can be extremely risky unless you know what you’re doing, and even if you’re an expert something unexpected can always happen. Spread betting companies such as CMC Markets and Finspreads are keen to make sure that their traders are aware of the risks and take whatever steps possible to minimise the potential of losing large amounts of money.

Therefore nearly every spread betting company allows customers to place stop losses. In the real stock market when your portfolio crashes in value you can lose everything and there is no method of protection, the stop loss is designed to make sure that your trade orders are cancelled if the market moves too far in the opposite direction to the direction in which you have traded.

Placing a stop loss is usually very easy, if you decide to trade on the market gaining at, for example, 4320 points at the same time you put in a stop loss that will cancel the order should the market fall below 4310, thus you only lose your original stake ten times over if things go awry, rather that potentially losing massive sums of money.

One of the problems with stop losses is known as ‘market gapping’ this is when the market suddenly lurches massively, passing straight over your stop loss. Take, for example, occasions when the market opens up or down three hundred points, traditionally if you had a stop loss in place near the closing price of the market, you could find that you have lost your original stake two or three hundred times over with absolutely no hope of making that money back.

For that reason CMC Markets who specialise in both spread betting and CFD trading have introduced a number of different types of stop loss. You can, for example, choose to have a stop loss that protects against gapping (for a small fee) so if the market gaps your order will still be cancelled and you will lose much less money. Another thing that they have introduced is a trailing stop loss, so if you are riding a big win and the market suddenly turns in the other direction, you will only lose up to a certain point, rather than possibly losing your entire winnings.

Stop losses are a vital element of spread betting, they are always free or very cheap to place and can potentially save you from losing your original stake hundreds of times over. If there is one piece of spread betting advice that is more important than any other it is simply to never trade without a stop loss.