Trailing stop limit
Family II · Orders
Not to be confused with stop loss, limit order, stop order.
Trailing stop limit is an order type that merges a trailing stop with a limit order. The trailing stop sets a trigger price that follows the market by a fixed distance or percentage, and when that trigger is hit, a limit order is placed at a specified limit price. This gives the trader control over both the activation and the execution price.
How it works
A trailing stop limit order has two key parameters: the trailing amount and the limit price. The trailing amount defines how far the stop trigger sits from the best market price. For a sell order, the trigger rises as the market price rises, but stays fixed if the market falls. If the market price reaches the trigger, the order submits a limit order at the limit price. The limit price is typically set at or below the trigger for a sell, or at or above for a buy. Execution is not guaranteed: the market must trade at the limit price or better.
Worked example
Suppose a stock is trading at $100. A trader places a trailing stop limit sell order with a trailing amount of $5 and a limit price of $94.
Key considerations
The trailing amount can be a fixed dollar value or a percentage, and the limit price is set by the trader. Because the order becomes a limit order after the trigger, it may not fill if the market gaps past the limit price. Some brokers may allow a limit price offset from the trigger, but this varies by broker and market. The order remains active until triggered, cancelled, or the limit order expires.
Often confused with
- stop loss
- A stop-loss becomes a market order when triggered, while a trailing stop limit becomes a limit order; the visible difference is that a stop-loss guarantees execution but not price, whereas a trailing stop limit guarantees price but not execution.
- limit order
- A limit order is a plain order to buy or sell at a specified price or better, while a trailing stop limit only becomes a limit order after a trailing trigger is hit; the visible difference is the presence of a trailing trigger price that moves with the market.
- stop order
- A stop order becomes a market order when a fixed stop price is reached, while a trailing stop limit has a stop price that trails the market and then places a limit order; the visible difference is that a stop order lacks a limit price and trails only if specified as trailing.