Guaranteed stop definition
A guaranteed stop-loss order (GSLO) is a type of order that ensures your position is closed out at the price you specify, regardless of market volatility, slippage, or gapping. Guaranteed stops are often free to attach, but your brokerage will charge you a premium if the order is triggered. This is due to the risks your broker is taking on for you.
How does a guaranteed stop work?
A guaranteed stop loss works in much the same way as a normal stop-loss order. You’re giving your broker an instruction to close your position at a specific level, thereby reducing your risk should the market move against you.
However, guaranteed stops go a step beyond this by eliminating any possibility that the price you set for your stop loss is missed. This can happen if the market gaps or slips during periods of high volatility, which creates a difference in the price at which your broker executes your order and the price you end up with.
So, if price should hit your GSLO, your order will be closed at the price your specified on the ticket as your stop loss. Your broker takes on the difference in price if there is one.