How to trade Knockouts

• Why trade Knockouts? 
• Knockouts vs CFDs
• How to start trading Knockouts
• Understand the basics of Knockouts
• Research the markets
• Get ready to open your first position
• Monitor and close your trade

Why trade Knockouts?

Trading Knockouts gives you a way to trade FX, indices and commodities with limited risk. 

You could think of Knockouts in a similar way to CFDs, in that you can speculate on rising and falling prices. But KOs close automatically if the market moves against you by a certain amount. So, they’re more akin to a CFD trade with a guaranteed stop-loss attached, without the premium to pay.

Knockouts vs CFDs 

See how Knockouts compare to a standard CFD trade and a CFD with a guaranteed stop-loss with the example below, including margin requirement and maximum loss.

Market: Wall Street / Wall Street UP KO
Trade size: Long $5/point at 34,025.5
Scenario: Wall Street drops by 200 points to 33,825.5. The Knockouts and guaranteed stop-loss order trades close automatically at the specified level, whilst you would need to manually close the standard trade.

How to start trading Knockouts

You can trade Knockouts online via contracts for difference (CFDs). You’ll never actually take ownership of, or sell, the underlying asset at the end of the contract. Instead, your profit and loss will always be settled in cash. 

Get started trading Knockouts with FOREX.com in just four steps:

Step 1. Understand the basics of Knockouts
Step 2. Research the markets
Step 3. Get ready to open your first Knockout position
Step 4. Execute, monitor and close your position

1. Understand the basics of Knockouts

Knockouts are contracts that automatically close if the underlying price reaches your chosen Knockout level. But otherwise, they work in much the same way as an options contract , in that they give you the right to buy or sell an asset at a set price – known as the strike price – on or before a set expiry date. 

Learn more about what Knockouts are and how they work 

With FOREX.com, you won’t be entering into the options contract, but rather speculating on its price. Our Knockouts move one-for-one with the underlying market. So, for every point the market’s price moves, the price of the FOREX.com Knockout moves the same amount. 

Instead of your profit or loss being determined by how far beyond the strike price the market moves, it’s determined by the difference between the point at which you opened your Knockout position and when you close it. If the price rises by 10 points, you’d have 10 points of profit, but if the price fell by 10 points, you’d have 10 points of loss. 

2. Research the markets

You can trade Knockouts on a range of underlying asset classes, including currencies, commodities and indices. With FOREX.com, our Knockouts markets include:

• EUR/USD
• GBP/USD
• EUR/GBP
• Gold
• Silver
• US Crude Oil 
• Wall Street (Dow Jones)
• US Tech 100 (NASDAQ)
• Singapore Index

View our full range of KOs on our Knockout market information page.

Whichever Knockout market you choose, you’ll need to make sure you’ve done your research and know what could impact the market price. 

For example, forex pairs are impacted by economic data, political news and central bank announcements; commodity prices are driven by manufacturing outputs, supply chains, and economic expansion; and indices are impacted by the share prices of their constituents. 

Learn more about each market in the FOREX.com Academy

3. Get ready to open your first Knockout position

When you’re opening your position, you’ll need to fill out a deal ticket. In order to do so, you’ll need to know: 

• Which market you wish to trade
• Whether you’re bullish or bearish
• What knockout level you’re setting
• The position size (quantity)

Once you’ve selected a Knockout market, you’ll need to decide whether to buy an UP or DOWN Knockout – in other words, whether you’re bullish or bearish about the market price. This will all depend on your research and any technical indicators you’ve used.

If you believe that the market price is going to increase, you’d choose “UP” from the deal ticket and then select a knockout level from the dropdown list, which will all be below the current market price – this way, if the market price falls, your position is closed (knockout-out) at the level you pick.

Alternatively, if you believe that the market price is going to decrease, you’d choose “DOWN” from the deal ticket and select your knockout level from the dropdown list, which will be above the current market value. So, if the price increases too much, your trade is knocked out at your chosen level.

Finally, you’ll specify your trade size by entering the number of contracts in the ‘quantity’ field.

Knockout costs

At this point, you’ll also be able to see the cost of your Knockout – which is the distance between the price of the underlying market at the time of placing the trade and the Knockout level. 

• For an UP KO trade this is calculated as the FOREX.com underlying ‘buy’ price minus the Knockout level
• For a DOWN KO trade this is calculated as the Knockout level minus the FOREX.com underlying ‘sell’ price

Before you trade, it’s also important to understand what costs you’ll incur. Our Knockouts pricing is fully transparent and simple to understand. You’ll know the cost of each trade you place upfront, with no hidden fees or charges.

We calculate the margin requirement based on your chosen Knockout level and trade size, which covers the spread cost (including the protection of your guaranteed Knockout level).

You can find out more about Knockout costs by navigating to the market information page section of your chosen market on Web Trader or mobile app.

Don’t have an account? Learn how to use our platform and trade Knockouts with a risk-free demo account.

4. Monitor and close your Knockout

Even though your Knockout will close automatically if the market moves against you and reaches your knockout level, you’ll still need to keep an eye on your open positions. That’s especially true if the price is moving in your favour, as you may decide to close out for a profit. You can choose to add a limit order to your position to take profits automatically.

However, monitoring your trades doesn’t have to mean you’re always glued to a computer or phone. With FOREX.com, you can set up automated alerts that tell you when your markets are moving so you’ll never miss a move.

If your Knockout level isn’t hit, you can exit a Knockout position on or before the date of expiry. When you’re ready to exit your position, you’d simply hit ‘close’.

Ready to get started? Explore our full range of Knockouts markets with a FOREX.com account.

Example of a Knockout trade

You believe the Wall Street market price is going to rise, so you buy an “UP” Wall Street KO with an underlying Ask Price of 34,025.5..

You place the buy position at $5 per point with a Knockout Level of 33,925.5.

The opening price of the Knockout is therefore 100 which is the distance between the price of the underlying market at the time of placing the trade and the Knockout level.

The margin is calculated as follows:

(Knockout opening price x Trade Size) x 1.1

In this example, your margin requirement for Wall Street Nov 26 UP KO would be: 100 x $5 x 1.1 = $550.

The 1.1 multiplier ensures we comply with regulations.

Your maximum risk is the Knockout opening price multiplied by the size of the trade, and in this instance is $500 – you cannot lose more than this making it a limited-risk trade.

Wall Street moves in your favour by 50 points to 34,075.5.

You choose to take profits by closing your position. So, your profit for the Knockout trade is calculated as follows:

(Knockout closing price – Knockout opening price) x amount/point

In this scenario, the profit on your Wall Street Nov 26 UP KO would be:

(150 – 100) x $5/point = $250 profit