Trading with a broker that offers no stop-loss slippage guarantee versus one that does
Guaranteed stops are a feature a few brokers offer, usually for a fee through a wider spread or a premium on each trade. The promise is that the stop executes at the exact level, no matter what the market does. For scalpers, the idea looks attractive until the cost enters the picture.
The premium can amount to several pips per trade, which is a huge percentage of a scalping target. In effect, the trader pays an insurance fee on every trade to protect against rare events.
Where the guarantee does make sense is around known risk periods, such as holding through a central bank decision or weekend. The fee is trivial relative to the potential gap.
For routine scalping in liquid hours, non-guaranteed stops with good execution generally cost less over time. The occasional bad fill is cheaper than paying for protection on thousands of trades.
The key is matching the tool to the situation, not applying it as a blanket default.
Is a guaranteed stop ever worth the premium for short-term trades?
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Trading with a broker that offers no stop-loss slippage guarantee versus one that does
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Amanhasnoname
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Re: Trading with a broker that offers no stop-loss slippage guarantee versus one that does
I tried guaranteed stops once on a broker that charged a wider spread on those orders, and I gave up after a month. It added about 1.5 pips per trade on EURUSD when my average target was only six, so I was paying a quarter of my gross for protection I needed on perhaps one trade in two hundred. The numbers simply did not work for routine scalping.
Where I do use it is the situation you describe, when I choose to hold through something scheduled. Before a central bank decision I have occasionally kept a small position with a guaranteed stop, because the fee is a small part of a position that may run fifty pips. The same goes for a weekend hold, which I otherwise avoid.
What I do instead for ordinary trading is keep the size small enough that a bad fill is survivable. My rule is that a slip of three times the stop should still cost me under two percent. That covers the unusual event much more cheaply than a premium on every trade.
Where I do use it is the situation you describe, when I choose to hold through something scheduled. Before a central bank decision I have occasionally kept a small position with a guaranteed stop, because the fee is a small part of a position that may run fifty pips. The same goes for a weekend hold, which I otherwise avoid.
What I do instead for ordinary trading is keep the size small enough that a bad fill is survivable. My rule is that a slip of three times the stop should still cost me under two percent. That covers the unusual event much more cheaply than a premium on every trade.