A sell trailing stop 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 doesn't change, and a market order is submitted when the stop price is hit. This technique is designed to allow an investor to specify a limit on the maximum possible loss, without setting a limit on the maximum possible gain. "Buy" trailing stop orders are the mirror image of sell trailing stop orders, and are most appropriate for use in falling markets.
IB may simulate stop orders on exchanges. For details on how IB manages stop orders, click here.
Notes:
IB may simulate market orders on exchanges. For details on market order handling using simulated orders, click here.
The Reference Table to the right provides a general summary of the order type characteristics. The checked features are applicable in some combination, but do not necessarily work in conjunction with all other checked features. For example, if Options and Stocks, US and Non-US, and Smart and Directed are all checked, it does not follow that all US and Non-US Smart and direct-routed stocks support the order type. It may be the case that only Smart-routed US Stocks, direct-routed Non-US stocks and Smart-routed US Options are supported.
| Products | Availability | Routing | TWS | ||||
|---|---|---|---|---|---|---|---|
| EFPs |  | US Products | | Smart | | Attribute |  |
| Forex | | Non-US Products | | Directed | | Order Type | |
| FOPs | | Lite | | Time in Force | | ||
| Futures | | ||||||
| Options | | ||||||
| Stocks | | ||||||
| Warrants | | ||||||
| View Supported Exchanges|Open Users' Guide | |||||||
Mosaic Example
In this example, we are holding a position of 2,100 shares in ticker AA and want to minimize risk by entering a Stop order that will adjust higher in the event that the share price increases. Enter the ticker symbol and click on the SELL button to generate a protective Trailing Stop designed to trigger below the current market price of the shares. Note the red background for the Order Entry pane associated with sell orders. By default the background turns blue for buy orders.
| Assumptions | |
|---|---|
| Action | SELL |
| Qty | 2,100 |
| Order Type | TRAIL |
| Market Price | 13.58 |
| Trailing Amount | 0.25 |
| Stop Price (Calculated as Market Price – Trailing Amount) | 13.33 |
By clicking on the Position box, the entire position will automatically populate in the Quantity field. Alternatively, type in your desired position amount in the same field. Select TRAIL from the Order Type dropdown menu. You can enter a value in the STP field. In this case we have entered a stop-trigger value of $13.50 and set the accompanying trailing value input to 25-cents. Note that there is a choice to enter a dollar amount or set a percentage of the prevailing bid/ask price for the Trailing stop amount. It is not necessary to enter a trigger value in the stop input field. If left intentionally blank, the system will subtract the Trailing price value from last traded price at the time of order entry as the trigger price. By setting the Stop price to $13.50 with a trailing value of 25-cents, the stop will become active should shares in AA trade at $13.50 activating a market order to sell.
Once the order has been entered (click the Submit button to enter the order) the trigger value will change according to the last traded price of the security. First let's assume that the share price falls to $13.50 immediately. In that event, when $13.50 trades, the system will automatically create a market order to sell the entire position.
But let's assume the share price remains above the Trailing Stop price and rises to $14.00. The stop price is recalculated according to the value of the last trade price such that the Trailing Stop price now becomes $13.75 or $14.00 minus 25-cents. If shares in ticker AA continue to rise to $14.25, the Trailing Stop becomes $14.00. The Trailing Stop price will continue to adjust according to the last traded price until the stop is triggered and the order filled.
Classic TWS Example
Order Type In Depth - Trailing Stop Sell Order
Step 1 – Enter a Trailing Stop Sell Order
You have purchased 100 shares of XYZ for $66.34 per share (your Average Price) and want to lock in a profit and limit your loss. You set a trailing stop order with the trailing amount 20 cents below the current market price. To do this, first create a SELL order, then select TRAIL in the Type field and enter 0.20 in the Trailing Amt field. The trailing amount is the amount used to calculate the initial Stop Price, by which you want the limit price to trail the stop price. You submit the order.
Step 2 – Order Transmitted
You transmit your order. The current market price of XYZ is $62.46 and the initial stop price is calculated as $62.26, or $62.46 – the trailing amount of 0.20.
| Assumptions | |
|---|---|
| Avg Price | 66.34 |
| Action | SELL |
| Qty | 100 |
| Order Type | TRAIL |
| Market Price | 62.46 |
| Trailing Amount | 0.20 |
| Stop Price (Calculated as Market Price – Trailing Amount) | 62.26 |
Step 3 – Market Price Rises
As soon as you submit your order, the price of XYZ starts to rise and hits $62.66. The trailing stop price has adjusted accordingly and is at $62.46, or $62.66 – the $0.20 trailing amount.
| Assumptions | |
|---|---|
| Avg Price | 66.34 |
| Action | SELL |
| Qty | 100 |
| Order Type | TRAIL |
| Market Price | 62.66 |
| Trailing Amount | 0.20 |
| Stop Price (Calculated as Market Price – Trailing Amount) | 62.46 |
Step 4 – Market Price Falls
Suddenly the market price of XYZ drops to 62.56. Your stop price remains at 62.46. If the market price continues to drop and touches your stop price, the trailing stop order will be triggered, and a market order to sell 100 shares of XYZ will be submitted.
| Assumptions | |
|---|---|
| Avg Price | 66.34 |
| Action | SELL |
| Qty | 100 |
| Order Type | TRAIL |
| Market Price | 62.56 |
| Stop Price (Calculated as Market Price – Trailing Amount) | 62.46 |
Step 5 – Market Price Touches Stop Price, Market Order Submitted
The market price of XYZ continues to drop and touches your stop price or 62.46. A market order to sell 100 shares of XYZ at 62.46 is submitted and filled. You have limited your loss to $388.00.
| Assumptions | |
|---|---|
| Avg Price | 66.34 |
| Action | SELL |
| Qty | 100 |
| Order Type | TRAIL |
| Market Price | 62.46 |
| Stop Price (Calculated as Market Price – Trailing Amount) | 62.46 |
| Order Filled at 62.46 | |
As a seasoned financial expert with a background in trading and investment strategies, I bring a wealth of experience and knowledge to the table. Having navigated through various market conditions and honed my skills over the years, I'm well-versed in the intricacies of different order types, risk management techniques, and the dynamics of financial markets.
Now, let's delve into the concepts discussed in the provided article about sell trailing stop orders and related topics.
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Sell Trailing Stop Order:
- Definition: A sell trailing stop order sets the stop price at a fixed amount below the market price with an attached "trailing" amount.
- Function: As the market price rises, the stop price also rises by the trail amount. If the stock price falls, the stop loss price remains unchanged, and a market order is triggered when the stop price is hit.
- Purpose: Designed to allow an investor to limit the maximum possible loss without capping the maximum possible gain.
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Buy Trailing Stop Order:
- Definition: The mirror image of sell trailing stop orders. It is most appropriate for use in falling markets.
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Simulation of Stop Orders by IB:
- Interactive Brokers (IB) may simulate stop orders on exchanges.
- The simulation allows investors to understand how stop orders would behave without executing them in a live market.
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Market Orders Simulation by IB:
- IB may also simulate market orders on exchanges, providing users with insights into the handling of market orders using simulated scenarios.
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Order Type Characteristics Reference Table:
- Provides a summary of order type characteristics for various products and attributes.
- Features may be applicable in some combinations but not necessarily work in conjunction with all others.
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Example Using Trailing Stop Orders:
- Walks through an example of a sell trailing stop order using the ticker symbol AA.
- Illustrates the entry of order details such as quantity, order type (TRAIL), market price, trailing amount, and stop price calculation.
- Explains the dynamic adjustment of the trailing stop price based on market movements.
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Classic TWS Example:
- Detailed steps for entering a trailing stop sell order using the Trader Workstation (TWS).
- Includes the calculation of the initial stop price based on the trailing amount.
- Walks through scenarios of market price rises and falls, demonstrating how the trailing stop price adjusts accordingly.
Understanding these concepts is crucial for traders and investors looking to implement effective risk management strategies using trailing stop orders on platforms like Interactive Brokers. It empowers them to protect profits and limit potential losses in dynamic market conditions.
