Trailing stop order
Family II · Orders
Not to be confused with stop loss, stop limit order, stop order.
Trailing stop order is a conditional order that keeps its trigger price a set distance from the market as the market moves favourably, and never moves against the position. When price reverses by that distance, the order activates and is sent as a market or limit order, depending on how it was configured.
How the trigger is calculated
The order stores a trailing distance, expressed either as an absolute price amount or as a percentage of the current market price. For a sell trailing stop, the trigger sits below the highest price reached since the order was placed; for a buy trailing stop, it sits above the lowest price reached. Each time the market makes a new favourable extreme, the trigger is recalculated and moved; when the market moves unfavourably, the trigger stays where it is.
The order does not execute at the trigger price itself. Once triggered, it becomes a market order or a limit order at a specified offset, so the actual fill can differ from the trigger.
Worked example
The trigger followed the high but did not fall when price retreated. The fill differs from the trigger because the order became a market order on activation.
Variations and risks
Trailing distance may be set in points, ticks, a percentage, or an ATR multiple, and the activated order may be a market order or a limit order. Brokers differ in whether the trail is calculated on last trade, bid, ask or mid price, and in whether it is adjusted during extended hours. A gap through the trigger can produce a fill well away from it, and a limit offset can leave the order unfilled if price keeps moving.
Often confused with
- stop loss
- A stop-loss is a fixed trigger that does not move once placed, whereas a trailing stop recalculates its trigger as the market advances; the visible sign is whether the trigger price changes on the order ticket after entry.
- stop limit order
- A stop-limit order pairs a trigger with a limit price that caps the acceptable fill, while a trailing stop has a moving trigger and may execute as a market order; the visible sign is the presence of a separate limit price alongside the trigger.
- stop order
- A stop order is any order that becomes active only after a trigger price is touched, and a trailing stop is one variety of it; the visible sign is whether the trigger is described as fixed or as following the market.