Example
Trailing Stop Quote Details
What is a Trailing Stop Order?
What's the difference between a Trailing Stop Order and a regular Stop Order?
The main distinction between a trailing stop order and a stop order is that as the market price of your chosen instrument changes, the stop price in the trailing stop order is automatically adjusted. Regular stop orders set the stop price at a fixed price.
Great news! - This trailing will only happen in an advantageous direction.
When Will the Order be Executed?
For equity orders, once the trigger method, the last price, penetrates the trailing stop price, a market order is sent to the marketplace.
Example:
Why use this Type of Order?
Long XYZ shares. You bought 100 shares of XYZ at $250 a week ago and it is currently trading at $264.00. You would like to be protected in case the underlying trades lower. You don't, however want to set a fixed lower stop 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 order that will trail the stock’s upward movement for you and positively adjust the stop price according to the parameters that you have set forth.
Enter The Order: Enter a sell trailing stop order, 100 shares, in points, trailing amount of $2.00.
What Happens Next?
2) XYZ rises to $268. 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 order has trailed upward and is now at $266.
Does the Trailing Price ever go lower?
4) No, the trailing sell stop price will never be lower than the initial stop price and as it is trading lower, the trailing stop price remains fixed at $266 until it is either triggered at that price or XYZ trades higher than $268. (The same behavior holds true for Buy Trailing Stop orders where the trailing buy stop price will never go higher than the initial buy stop price)
5) XYZ rises rapidly higher to $275.
6) The trailing sell stop order has trailed upward and is now at $273.
When Do I get filled?
7) XYZ has risen to a new high of $275 and a new trailing stop order price of $273 has been set. The underlying then proceeds not to go any higher and drops back down to $273. Your trailing sell stop order is then triggered and a market order to sell 100 shares is sent to the marketplace.
Trailing Stop 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 orders?
- Equity orders:
1. The calculation of the initial stop price in a trailing stop order
A) Buy trailing stop orders- The initial stop price is calculated by: last + trailing amount.
B) Sell trailing stop orders- The initial stop price is calculated by last - trailing amount.
2. The movement of the stop price in a trailing stop 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 orders are:
A) Buy trailing stop orders- The trigger method for the stop order is last trade.
B) Sell trailing stop orders- The trigger method for the stop order is last trade.
Please note default trigger method is double last.