What is a Trailing Stop Limit Order?
Example
Trailing stop Limit Quote Details

What is a Trailing Stop Limit Order?
The trailing stop limit order, a variation of the stop limit order, is an order that is entered with both a trailing amount (in points or percentage) that creates a 'moving' or trailing Stop Price and a Limit offset amount (in points or percentage) that calculates the limit order price once the Trailing Stop is triggered.

What is the Difference Between a Trailing Stop Limit Order and a Regular Stop Limit Order?
The main distinction between trailing stop limit orders and stop limit orders is two-fold.  First, as the market price of your chosen instrument changes, the stop order price component in a trailing stop limit order is automatically positively adjusted.  Secondly, the limit price in a trailing stop limit order is not a fixed price, but rather calculated by a user specified limit offset amount that is either added or subtracted from the triggered trailing stop price.  Regular stop limit orders set the limit price as a fixed price.

Am I Guaranteed an Execution?
No, similar to limit and stop limit orders, trailing stop limit orders do not guarantee an execution. For equity orders, once the trigger method, the last price, penetrates the trailing stop price, a limit price is calculated and sent to the marketplace.
 

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Example

 

Why Use this Type of Order?
 Long XYZ shares- You bought 100 shares of XYZ at $110 a week ago and it is currently trading at $120. You would like to be protected in case the underlying trades lower. You don’t, however want to set a fixed lower stop limit price and don’t want to monitor the underlyings’ every movement during the day.

What to Do?
1) You could use a trailing sell stop limit order that will trail the stock’s upward movement for you and positively adjust the stop price and stop limit price according to the parameters that you have set forth.

Enter the Order: Enter a sell trailing stop limit order, 100 shares, in points, trailing amount of $2.00, limit offset amount of -$0.25

What Happens Next?
2) XYZ rises to $130. After the initial stop price is calculated, the stop price will positively adjust automatically, following or trailing the underlying instrument by the amount or percentage that you have chosen.

3) The trailing sell stop limit order has trailed upward and is now at $128.

Does the Trailing Price Ever Go Lower?
4)No, the trailing sell stop price component of the order will never be lower than the initial stop price and as the underlying is trading lower, the trailing stop price remains fixed at $128 until it is either triggered at that price or XYZ trades higher than $130. (The same behavior holds true for buy trailing stop orders where the trailing buy stop price component will never go higher than the initial buy stop price)

5) ) XYZ rises rapidly to $145

6) The trailing sell stop limit order has trailed upward and is now at $143.

When is the limit order sent to the market-place?
7) XYZ has risen to a new high of $145 and a new trailing stop order price of $143 has been set.  The underlying then proceeds not to go any higher and drops back down to $143. Your trailing sell stop limit order is then triggered and a limit order to sell 100 shares at $142.75($143-$0.25 limit offset) is sent to the marketplace.


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Trailing Stop Limit Quote Details:

1)Question: What are the calculations for the initial stop price, movement of the stop price and the trigger method in trailing stop limit orders?

  • Equity orders:
    1. The calculation of the initial stop price in a trailing stop limit order
    A) Buy trailing stop limit orders- The initial stop price is calculated by: last + trailing Amount.
    B) Sell trailing stop limit orders- The initial stop price is calculated by last - trailing Amount.

    2. The movement of the stop price in a trailing stop limit order is calculated by:
    A) Buy trailing stop orders- The movement of the stop price is calculated by: last low after order placed + trailing amount.
    B) Sell trailing stop orders- The movement of the stop price is calculated by: last high after order placed - trailing amount.

    3. The trigger methods for trailing stop limit orders are:
    A) Buy trailing stop orders- The trigger method for the Stop order is the last trade.
    B) Sell trailing stop orders- The trigger method for the Stop order is the last trade.
    Please note default trigger method is double last.

    4. The calculations for the limit price in trailing stop limit orders are:
    A) Buy trailing stop orders- limit offset amount +- the triggered stop price.
    B) Sell trailing stop orders- limit offset amount +- the triggered stop price.