B2BX Exchange / Trading / Trailing Stop Orders

Trailing Stop Orders

A trailing stop order is a stop order that can be set at a defined amount away from a current market price. A trader places a trailing stop for selling below the current market price; for buying, it sets above the current price. Trailing stop orders are designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is moving in the trader’s favor but closes the trade if the price changes direction by a specified amount.

  • Trailing Stop Market

A stop market order that can be set at a defined amount away from the current market price. A trailing stop for a long position would be set below the current market price. For a short position, it would be set above the current price. A trailing stop is designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is moving in the right direction, but closing the position if the price changes direction by a specified amount. Once the stop is triggered, the trailing stop market order is automatically entered as a market order.

  • Example: If the trader is in a long position (he bought an active and waiting for higher price to sell it) and the current market price is 120 points after a quick rise from 95 points, a trader can set a trailing stop with a price distance of 5 points. This will create a sell stop market order at 115. As opposed to a normal stop order, if the market price continues rising up to 145, then the trailing stop price would rise accordingly, always staying 5 points behind the market price, rising up to 140 in this example.
    The stop price trails behind the market price by the amount specified as price distance and allows for a stop to adjust to the market if the market moves in a profitable direction. If the stop is triggered, a market order would be placed.

 

  • Trailing Stop Limit

A stop limit order that can be set at a defined amount away from the current market price. The limit price can also be set at a defined amount away from the stop price. A trailing stop for a long position would be set below the current market price; for a short position, it would be set above the current price. A trailing stop is designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is moving in the right direction, but closing the trade if the price changes direction by a specified amount. Once the stop is triggered, the trailing stop limit order is automatically entered as a limit order.

  • Example: A trailing stop limit order is designed to allow a trader to specify a limit on the maximum possible loss. A Sell trailing stop limit moves with the market price, when it goes up, and continually recalculates the stop trigger price at a fixed distance below the market price, based on the user-defined “trailing” points. The limit order price is also continually recalculated based on the limit offset. As the market price rises, both the stop price and the limit price are rising by the trail points and limit offset respectively, but if the price falls, the stop price remains unchanged, and when the stop price hits a limit order will be submitted at the last calculated limit price. A Buy trailing stop limit order is the mirror of the sell trailing stop limit, and has generally used on falling markets.