Limited Risk Spread Betting Accounts

What is a Limited Risk Spread Betting Account?

cityindex-ukYou must always remember that although spread betting offers great potential to acquire extensive profits that it is also as a leveraged product. This particular feature means that there always exists a substantial risk that if price advances against your active spread bets that you could sustain serious losses.

Consequently, a number of spread betting brokers now offer Limited Risk Accounts that can help you control your risk exposure. These facilities are ideal for novices or traders with limited experience. A Limited Risk Account can provide you with a level of comfort because every spread bet that you executed with be supported by a Guaranteed Stop Loss Order, which will restrict the size of your potential losses.

This article introduces the main concepts of a Limited Risk Account and then briefly compares it to other account options. The facilities supplied by two prominent brokers are then identified.

Limited Risk Deposit Accounts

This type of account is similar to the standard account but requires that you will only be able to execute new spread bets if they are backed by ‘Guaranteed Stop Loss Orders’ (GSLO). This means that Limited Risk Accounts can only be operated if an instruction, i.e. a GSLO, is specified at the time when each spread bet is initiated (Read:How to place spread bets) to close a it at a predefined price. In other words, when opening a spread bet, you must issue a stop-loss order in order to limit the size of your maximum possible loss.

This type of stop-loss order will be guaranteed by the spread betting company under all conditions. In addition, Limited Risk Accounts may only allow access to a limited range of spread betting markets and may impose a maximum stake size. Depending on your level of experience and financial situation, you may well be steered towards the limited risk account initially for your own safety. Once you have acquired some experience and skill at spread betting trading, you can then always request a free transfer to another account type. To enable you to make such a choice, the Standard and Credit accounts will now be briefly outlined so that you can make a comparison.

Standard Accounts

This account needs you to deposit funds in your spread betting account before you can start trading. The balance will then be utilized to fund your margin requirements whenever you activate spread bets.  The profits and losses from your spread betting activities will then be added or subtracted respectively from this balance. This balance is referred as either the equity or cash balance.

Credit Accounts

These accounts are usually reserved for the more experienced traders. No deposit is necessary. If you are successful in registering a positive credit status then you should be aware that you will be issued with an account limit. Subsequently, any losses causes your account balance to exceed this specified value must be resolved promptly. Brokers who offer this account type will generally demand proof that you possess sufficient cash reserves that are capable of covering excessive losses exceeding your account limit.  Without this evidence, you will not be permitted to open such an account.

Spread Betting Brokers that Offer Limited Risk Accounts:

Two such brokers will now be assessed which are Finspreads and City Index.

1.   Finspreads Review

The Limited Risk Accounts supported by this broker is similar to its Standard Account in that it will allow you to trade thousands of markets. However, the primary difference is that your trading capital will be provided with additional protection so that it will never be depleted. The key features of a Limited Risk Account offered by Finspreads are as follows:

  1. All spread bets will be supported by a Guaranteed Stop Loss Order (GSLO).
  2. A GSLO will automatically exit a losing spread bet at a predefined value even if price produces a sizeable and sudden gap.
  3. GSLOs provide your equity with the maximum protection even during volatile conditions.
  4. A GSLO will incur a minor fee upon the opening of a spread bet.

By opening a Limited Risk Account with Finspreads, you will also be entitled to trade using a minimum stake size of just 50p. In addition, you will be able to speculate on a vast selection of assets including day trades, shares, indices, commodities and currency pairs. You will also be able invest into the spread betting markets using Finspreads range of impressive trading platforms including its mobile options.

2.   City Index Review

City Index supports a Limited Risk Account which will allow you to trade over 12,000 markets, including indices, shares, currencies and commodities. Launching such an account with this broker is an excellent method of controlling your risk exposure when trading the spread betting markets. This is because every spread bet that you instigated with be supported by a Guaranteed Stop Loss Order (GSLO). A GSLO means that you will never risk more than the total balance of your trading account.

Limited Risk Account

Other primary attributes of a Limited Risk Account provided by Citi Index include:

  1. Identical spreads are provided as those received by holders of the standard account.
  2. GSLO charges are displayed clearly on your account transactions
  3. You do not have to monitor margin levels.
  4. You will be able to speculate on 12,000+ different markets.

The key benefits of this broker’s Guaranteed Stop Loss Order are:

  1. Modifications can be implemented without incurring extra fees during trading hours.
  2. Order levels must be located at a minimum distance above and below the current price of an asset.
  3. GSLOs are not available for every tradable asset.

Guaranteed Stop Loss Orders are assessed by experts to be an excellent risk management tool especially during volatile and gapping market conditions.

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