Trailing stop orders can be regarded as dynamical stop loss orders that automatically follow the market price. You can use these orders to protect your open position: when the market price reaches a certain critical value (stop price), the trailing stop order becomes a market order to close that position.
The initial trailing stop value is set at a certain distance (offset) away from the immediate market price of the instrument. For trailing stop orders to buy, the initial stop is placed above the market price, thus the offset value is always positive. For those to sell, it is placed below, which suggests the negative offset. Once placed, the stop value is constantly adjusted based on changes in the market price.
Trailing stop orders to buy lower the stop value as the market price falls, but keep it unchanged when the market price rises. For trailing stop orders to sell, it's vice versa: the stop value follows the market price when it rises, but remains unchanged when it falls.
Example
Let's say you bought a stock at $25 per share and would like to protect it with a trailing stop. You place a trailing stop order to sell with an offset of $2 which means that the initial trailing stop value is $23. Should the market price rise to, for example, $35, the trailing stop will be adjusted (kept $2 away from the market price, so, in our case it will be equal to $33). But if having reached that level, the market price starts falling, the trailing stop will keep its value of $33. Given that market price continues to fall and reaches this value, the trailing stop order becomes a market order with the sell price $33.
How to add it
1. Add an order of the proper side anywhere in the application.
2. In the Order Confirmation dialog, click Edit. The Order Entry Tools panel will appear.
3. In the Order Entry ticket, choose TRAILSTOP from the Order drop-down list.
4. Click the gear-and-plus button on the right of the order line. The Order Rules dialog will appear.
5. In this dialog, specify both type of the market price that needs to be monitored (STOP Type) and the price type with which the trailing stop is calculated (STOP Linked to). Available choices for the former are:
- ASK or MARK for Buy orders;
- BID or MARK for Sell orders.
6. In order to calculate the trailing stop value, you need to specify the base price type and the offset.
7. Click OK.
8. In the Order Entry ticket, click Confirm and Send.
Trailing stop calculation
Trailing stop is calculated using a certain price type, which you specify in the Order Rules dialog (STOP Linked To drop-down list). You can choose any of the following options:
- LAST. The trailing stop price will be calculated as the last price plus the offset specified as an absolute value.
- LAST%. The trailing stop price will be calculated as the last price plus the offset specified as a percentage value.
- BID. The trailing stop price will be calculated as the bid price plus the offset specified as an absolute value.
- BID%. The trailing stop price will be calculated as the bid price plus the offset specified as a percentage value.
- ASK. The trailing stop price will be calculated as the ask price plus the offset specified as an absolute value.
- ASK%. The trailing stop price will be calculated as the ask price plus the offset specified as a percentage value.
- MARK. The trailing stop price will be calculated as the mark price plus the offset specified as an absolute value.
- MARK%. The trailing stop price will be calculated as the mark price plus the offset specified as a percentage value.
- AVG PRC. The trailing stop price will be calculated as the average fill price plus the offset specified as an absolute value. The average fill price is calculated based on all trades that constitute the open position for the current instrument.
- LAST T. The trailing stop price will be calculated as the last price plus the offset specified in ticks.
- BID T. The trailing stop price will be calculated as the bid price plus the offset specified in ticks.
- ASK T. The trailing stop price will be calculated as the ask price plus the offset specified in ticks.
- MARK T. The trailing stop price will be calculated as the mark price plus the offset specified in ticks.
- AVG PRC%. The trailing stop price will be calculated as the average fill price plus the offset specified as a percentage value. The average fill price is calculated based on all trades that constitute the open position for the current instrument.
- AVG PRC T. The trailing stop price will be calculated as the average fill price plus the offset specified in ticks. The average fill price is calculated based on all trades that constitute the open position for the current instrument.
- ASK/BID. The trailing stop price will be calculated as either the bid or the ask price plus the offset specified as an absolute value. The system automatically chooses the ask price for Buy orders and the bid price for Sell orders.
- ASK/BID%. The trailing stop price will be calculated as the bid price plus the offset specified as a percentage value. The system automatically chooses the ask price for Buy orders and the bid price for Sell orders.
- ASK/BID T. The trailing stop price will be calculated as the bid price plus the offset specified in ticks. The system automatically chooses the ask price for Buy orders and the bid price for Sell orders.