{"id":176272,"date":"2022-03-17T15:20:00","date_gmt":"2022-03-17T19:20:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/trading-lessons\/trailing-stop-limit\/"},"modified":"2024-12-10T12:31:15","modified_gmt":"2024-12-10T17:31:15","slug":"trailing-stop-limit","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/trailing-stop-limit\/","title":{"rendered":"Trailing Stop Limit"},"content":{"rendered":"\n

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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\u2019t automatically execute immediately.<\/p>\n\n\n\n

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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 \u201ctrailing\u201d 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.<\/p>\n\n\n\n

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Before entering a trailing stop limit sell order in the Mosaic Order Entry Panel, \u00a0let\u2019s define the component pieces of the order.<\/p>\n\n\n\n

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Cost Basis \u2013 Original entry price(s)the investor paid to own the stock multiplied by the position.<\/p>\n\n\n\n

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Current Price \u2013 Live market price of the underlying stock.<\/p>\n\n\n\n

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Stop Price The price at which the order will be triggered.<\/p>\n\n\n\n

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Limit Price \u2013 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.<\/p>\n\n\n\n

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Trailing Amount \u2013 The trail amount defines the stop price and \u2018trails\u2019 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.<\/p>\n\n\n\n

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Let\u2019s 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:<\/p>\n\n\n\n

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Example 1<\/h3>\n\n\n\n

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.<\/p>\n\n\n\n

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Example 2<\/h3>\n\n\n\n

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.<\/p>\n\n\n\n

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Example 3<\/h3>\n\n\n\n

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.<\/p>\n\n\n\n

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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.<\/p>\n\n\n\n