Which stop loss is best in a volatile market?

Along with some exciting opportunities, the current volatility in the markets presents spread betters with increased risk. It is vital that you choose and set your stop losses properly. But which ones should you use? Tim Bennett explains.

Only someone who has been in an underground bunker (or more likely been on holiday) recently, will have missed one very clear feature of recent equity markets huge volatility. And that presents both opportunities and challenges for spread betters, especially when it comes to stop losses.

The fastest way to get a handle on the level of volatility in, say, the US equity market (something of a global equity barometer) is the Chicago Board of Exchange (CBOE) Vix index. Its long-term average volatility reading is around 13-15. But at the moment it is hovering near 40. Sure, it's been up much higher than that in the past (over 80 in 2008)but as a rule of thumb, anything above about 30 is taken to indicate big volatility. And that can mean extra trading risk.

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.