Trailing stop limit order
Family II · Orders
Not to be confused with stop loss, limit order, stop order.
Trailing stop limit order combines two mechanisms: a trailing stop that follows the market by a chosen distance, and a limit order that is submitted once the stop is triggered. The trailing component moves only in the direction of profit, while the limit component caps the price at which the resulting order can execute. Because the limit price is set when the stop triggers, the order may remain unfilled if the market gaps through that price.
How the trailing stop and limit interact
The trailing stop is defined by a distance, which may be a fixed amount or a percentage of the market price. As the market moves favourably, the stop level is recalculated to maintain that distance; when the market moves adversely, the stop level remains unchanged. When the market reaches the stop level, the order triggers and a limit order is placed at a preset offset from the stop level. The offset is typically set when the order is created and does not change after triggering.
Execution depends on the availability of counterparties at or better than the limit price. If the market moves quickly past the limit price, the order may not fill, leaving the position open.
Worked example
A trader holds a long position and places a trailing stop limit order with a trailing distance of 5.00 and a limit offset of 0.10 below the stop level. The market rises, and the stop level follows.
Key features and risks
- The trailing stop moves only in the favourable direction, locking in gains as the market advances.
- The limit price is fixed at the time of triggering and does not trail.
- If the market gaps through the limit price, the order may not execute, and the position remains exposed to further adverse movement.
- Some venues may reject or cancel the limit order if it would execute immediately upon placement, depending on local rules.
Often confused with
- stop loss
- A stop-loss order becomes a market order when triggered, whereas a trailing stop limit order becomes a limit order; the visible sign is that a stop-loss guarantees execution but not price, while a trailing stop limit order guarantees price but not execution.
- limit order
- A limit order is a standalone instruction to buy or sell at a specified price or better, while a trailing stop limit order is conditional and only submits a limit order after a trailing stop is triggered; the visible sign is the presence of a trailing stop level that adjusts with the market.
- stop order
- A stop order becomes a market order when a specified stop price is reached, while a trailing stop limit order becomes a limit order at a fixed offset from a trailing stop level; the visible sign is that a stop order has a static trigger price, whereas a trailing stop limit order has a trigger that moves with favourable market movement.