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Limited Risk Trading

AFA Markets' Guaranteed Stops offer the best possible protection against an adverse market move, letting you trade CFDs without assuming a potentially open-ended liability.

When you place a Guaranteed Stop you set the exit price for your trade. Your position will be closed out at exactly your selected level should the market move against you, even if there is a very sharp overnight move.

There is a one-off extra charge, in effect an insurance premium, for this Limited Risk protection. For Singapore and most other shares this is typically just 0.3% of the underlying transaction value. Limited Risk protection is not available on all shares and the size of the position on which we may be able to offer this facility may be limited. We will be happy to advise you of the facilities available for any particular share.

The margin requirement for a Limited Risk trade is equal to the amount which would be lost if your Guaranteed Stop were triggered, plus 10% to cover any interest or dividend adjustments.

We also offer a full range of non-guaranteed orders to open and close CFD positions. These are available free of charge on most transactions.

Example: Buying SIA with Limited Risk

	You think Singapore Airlines looks a bargain stock, but are worried about the chance of a surprise downturn.

Opening the position

Say Singapore Airlines is trading at $11.20/11.30. You decide to buy 6000 shares as a CFD at open price of $11.30, the offer price, on a Limited Risk basis.

You place your Guaranteed Stop at $10.75. This means that, if the share price drops sharply, your exit price will be guaranteed at $10.75. So the most you can lose on the position (excluding transaction costs) is $3300 ($11.30, the opening level, minus $10.75, the stop level = $0.55: $0.55 x 6000 shares = $3300).

The standard commission on the transaction is 0.15% or $101.7 (6000 shares x $11.30 x 0.15%).The Limited Risk premium is also charged when the position is opened. In this case it is 0.3% or $203.

Triggering the Guaranteed Stop

After you have held the position for a few weeks, the whole share market opens markedly lower one morning after negative overnight news. Singapore Airlines closed the previous day at $11.10, but now opens at $9.40. Your Guaranteed Stop is triggered and your position is closed at $10.75, even though the market never traded there!

You sell 6000 shares at $10.75. The commission on the transaction is $96.75 (6000x$10.75x0.15%).

Your loss on the trade is calculated as follows:

Loss on trade

Opening level	$11.30
Closing level	$10.75
Difference	$0.55
Loss on trade: $0.55 x 6000 = $3300

Without the Guaranteed Stop, you would have been lucky in this example to close your position at $9.40 representing a loss on the position of $11,400.

To calculate the overall result of the transaction you also have to take into account the commission and Limited Risk premium you have paid and the interest and dividend adjustments. These are applied to Limited Risk positions in exactly the same way as to standard CFD positions.