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Trailing Stop Limit

Lesson 14 of 21

Duration 7:47
Level Beginner
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In this video we will walk through how to enter an order using the Trailing Stop Limit order type. The Trailing Stop Limit order works with U.S equities, options, futures, FOPS, Warrants as well as Forex and certain non-US products. A trailing stop limit order is designed to allow the investor to set a limit on the maximum possible loss without setting a limit on the maximum possible gain. Typically, Stop orders become market orders when touched. However, the Trailing Stop Limit order becomes a limit order when the stop price is touched, meaning that it doesn’t automatically execute immediately.

For a long stock position for example, a sell trailing stop limit order sets the stop price at a fixed amount below the market price with an attached “trailing” amount. As the market price rises, the stop price rises by the trail amount, but if the stock price falls, the stop loss price does not change, and a limit order is submitted when the stop price is hit.

Before entering a trailing stop limit sell order in the Mosaic Order Entry Panel,  let’s define the component pieces of the order.

Cost Basis – Original entry price(s)the investor paid to own the stock multiplied by the position.

Current Price – Live market price of the underlying stock.

Stop Price The price at which the order will be triggered.

Limit Price – The specified price an investor is willing to trade a contract. For sell orders the investor will sell at the limit price or higher and for buy orders they will pay the limit price or lower.

Trailing Amount – The trail amount defines the stop price and ‘trails’ the current price to the upside for a sell stop, and to the downside for a buy stop. In the case of a trailing limit sell stop, the stop and limit prices will remain intact should the share price decline rather than increase, ensuring that the maximum potential loss is never greater than initially designed. However, should the share price rise, as the investor hopes it would, for a trailing limit stop price, the trailing amount will shadow the current price by the amount of the trail lifting the Stop and Stop Limit price with it.

Let’s walk through a few scenarios. The investor originally purchased 100 shares of Stock ABC for $85 a share. Currently, the last traded price is $100, and the investor is looking to exit the position using a Trailing Stop Limit Order. They set the trail to $1 and the STP to $97 and the limit to $95, $2 below the stop price:

Example 1

The stock rises to $115, the new STP price becomes $114, and the limit will adjust to $112. The order will be triggered if the stock price falls to $114 with a limit price of $112. Stock then begins to fall below $114 triggering the order and is eventually filled at $112 when the Stop Limit price is reached.

Example 2

This time stock ABC begins to fall from its $115 high to $113, triggering the order but instead of reaching $112 stock ABC reverses course and rises to $120. The new stop price becomes $119, and the new limit will be $117. If stock continues to rise the Stop and Limit prices will rise along with it setting a higher exit price if the stock begins to fall.

Example 3

Stock ABC begins to fall immediately after the order is entered, the ordered is triggered when the stock goes to $97, if stock ABC continues to fall the order will be filled at $95, if stock ABC begins to rise the Stop Limit price will adjust accordingly.

While a Trailing Stop Limit order can be used for an opening or closing trade, investors may find it especially useful when closing out a position.

  • The investor can locate current positions in the Portfolio tab of the monitor screen.
  • Hover the cursor over the symbol, click on the mouse and choose “Close” to populate the order entry panel.
  • If the investor would like to close part of the position they can scroll down in the drop-down box, select trade, and choose the percentage they would like to close. This will populate the Order Entry panel with the correct symbol, side, and position size.
  • In the order type drop down box scroll down and select “Trail Limit”.
  • This will change the price box to show LMT and you will also now see two additional boxes appear alongside: the STP input field and the Trail input field next to it.
  • You can set the Trail amount to be either a dollar amount or a % of the current price. In this example we will use the absolute dollar amount.
  • The trailing amount will recalculate the stop price is based on the last traded price at the time of the order and tracks it throughout the lifetime of the order if stock moves in the favor of the investor.
  • We will set the Trailing amount to 5 cents by clicking on the price and typing in .05 or scrolling to it.
  • Now enter a stop price below the current bid price.
  • Remember with a trailing stop limit the stop price will adjust accordingly if the market goes in your favor but will never adjust to cause more than the maximum possible loss you initially define.
  • We will also set the Limit price.
  • Once the limit price is set, the limit offset is calculated by the difference between the Stop price and the limit price, if the stock moves in your favor a limit offset be used to determine the new limit price once the stop price is triggered.

Now that the order is set, click submit and the order confirmation window will appear summarizing the order and the inputs you selected. Click Transmit and the order will populate the Activity panel and show TRAIL LIMIT in the Type data column. You can also track the stop price by adding the “Stop Price” data column, the Trailing amount by adding the “Aux. Price” data column, and the limit offset by adding the “LMT. Offset” data column to the Activity Panel order tab by clicking on the gear icon in the top right-hand corner. The Trailing Stop Limit order is a great way for the investor to set a limit on loss using a limit order without potentially limiting possible profit.

Additional Link:
https://www.interactivebrokers.com/en/index.php?f=606

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8 thoughts on “Trailing Stop Limit”

  • Eran

    I don’t understand the advantage of having a trailing stop limit command over a trailing stop command without limit.
    I understood that in a stop order with a limit I do not allow the order to be executed below the limit price, but here you did not talk about limiting the selling price, so what is the purpose of inserting the limit price into the order here?

      • Interactive Brokers

        Thank you for contacting us. The video states that the Trailing Stop Limit becomes a limit order when the stop price is touched, meaning it does not automatically execute. You can review more information about our order types on our webpage:https://spr.ly/IBKR_OrdersCampus

        Please reach back out with any additional questions. We are here to help!

  • Brian

    Will you update these to reflect your app

    • Interactive Brokers

      Hello, thank you for reaching out. We strive to continuously enhance Traders’ Academy courses. Please view this FAQ for instructions to place a trailing stop limit order in IBKR Mobile: https://www.ibkr.com/faq?id=38437623
      We hope this answers your question.

  • Ronald

    Hi, I missing example Trail Limit for sell without and with hotkey.

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Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

Disclosure: Order Types / TWS

The order types available through Interactive Brokers LLC's Trader Workstation are designed to help you limit your loss and/or lock in a profit. Market conditions and other factors may affect execution. In general, orders guarantee a fill or guarantee a price, but not both. In extreme market conditions, an order may either be executed at a different price than anticipated or may not be filled in the marketplace.

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