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Trailing Stop

Imagine a Stoploss order that continuously improves its Stop Price by a pre-defined deviation.

A "Trailing Stop" intelligent order has similar characteristics as a Stoploss order with the difference in that it allows for an automatic change in the stop price based on pre-defined parameters (i.e. "deviation from stop price").

  • If the current reference price drops to the stop price, the order is activated and the shares are sold (for a sell Trailing Stop order) or bought (for a buy Trailing Stop order).
  • For a sell Trailing Stop order, the stop price is moved upwards when the price of the security increases and reaches a new maximum during order validity. If the price drops or remains unchanged, the stop price remains unchanged and the highest achieved value remains in place.
  • For a buy Trailing Stop order, the stop price is moved by the defined deviation downwards when the price of the security decreases and reaches a new minimum during order validity. If the price increases or remains unchanged, the stop price remains unchanged and the lowest achieved value remains in place.
  • After activation, a Trailing Stop order behaves as a market-type order, which means that its tries to sell (or buy in the case of a buy order) the shares at any price. Emphasis is placed on closing open positions as quickly as possible. A variant on this order where a limit price is entered is known as a Trailing Limit order.

Example:

An investor buys a stock at CZK 100 and then enters a sell Trailing Stop order with a defined "Stop Price Deviation" of CZK 5.

The investor's primary objective is to limit the risk of a loss of invested funds and to allow for an automatic increase in the stop price so that it remains CZK 5 lower than the highest price achieved during order validity. If the price drops below the stop price, the shares are sold.

Direction: sale

Price when order submitted: CZK 100

Deviation from stop price: CZK 5

First generated stop price: CZK 95 (i.e. 100 - 5)

Objective: sell the share if the price drops to the stop price level. At the same time, the investor wants to maximize the stop price in order to sell below the local maximum.


An example sell Trailing Stop order

An investor decides to sell shares using a Trailing Stop intelligent order, in order to preserve the achieved profit but also expects the stock to increase slightly in price.

Order parameters

  • Direction: sale
  • Quantity: 50 shares
  • Stop price deviation: CZK 8
  • Limit price: CZK 854
  • Objective: sell the share if the price drops to the stop price level. At the same time, the investor wants to maximize the stop price in order to sell below the local maximum.

Market depth at the time the order is placed

The Trailing Stop order is not shown at the depth of the market. The order waits outside the market until the conditions for its activation are met (reference price drops to or below the stop price).

  • First generated stop price: CZK 855 (863 - 8)
 RateCumulative number of shares 
 869,30950Offer
 867,00600
 866,80550
 865,00300
 864,00100
 863,00 Reference price (rate)
 862,0050Bid
 861,00100
 860,00400
 857,30650
 855,00800

Depth of the market with an increase in price

Reference price for the stock increases to CZK 879.

  • Last generated stop price: CZK 871 (879 - 8)
 RateCumulative number of shares 
 882,00450Offer
 881,00400
 880,80150
 880,00100
 879,0050
 879,00 Reference price (rate)
 878,00500Bid
 877,40650
 876,30800
 872,00850
 871,00950

Depth of the market at order activation

Reference price for the stock decreases to CZK 871. The price does not match the previously generated stop price, which activates the order and results in a sell order with a limit price of CZK 854, which is settled at a price of CZK 870.

  • Last generated stop price: CZK 871 (879 - 8)
 RateCumulative number of shares 
 881,00900Offer
 875,00600
 873,80550
 873,00300
 872,00150
 871,00 Reference price (rate)
 870,00500Bid
 875,40600
 874,00800
 871,00900
 870,00950
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