Trailing Stop Order

A trailing stop order lets you track the best price of a stock before triggering a market order. Investors often use trailing stop orders to help limit their maximum possible loss.

With a trailing stop order, the trailing stop price follows, or “trails,” the best price of the stock by a trail that you specify. If the stock’s price moves in a favorable direction, the trailing stop price will move with the stock. If the stock’s price moves in an unfavorable direction, the trailing stop price will stay the same.

If the stock’s price reaches the trailing stop price, a market order is triggered. The market order will be executed at the best price currently available.

Keep in mind, short-term fluctuations in a stock’s price can trigger a trailing stop order. Also, you aren’t guaranteed a price with a trailing stop order. Also, not all stocks support market orders during extended hours. If the market is closed, the order will be queued for market open. Learn more by checking out Extended-Hours Trading.

Buy Trailing Stop Order

With a buy trailing stop order, the stop price follows, or “trails,” the lowest price of a stock by a trail that you set. If the stock rises above its lowest price by the trail or more, it triggers a buy market order. Then, the stock will be purchased at the best price available.

 Example

You want to buy MEOW, but you think it will fall in value and want to wait to purchase it. You also think that if MEOW goes up by a defined amount (let’s say 5%) it may go even higher. In an attempt to help minimize potential costs, you set your trail to 5%. Your stop price will always remain 5% above MEOW’s lowest price.

MEOW is currently trading at $110 per share. Your stop price will start at $115.50, which is 5% higher than the current price of MEOW.

  • If MEOW stays between $110 and $115.50, the stop price will stay at $115.50.
  • If MEOW falls to $100, the stop price will update to $105, 5% above than the new lowest price.
  • If MEOW rises to the stop price ($105.50) or higher, it triggers a buy market order. MEOW will be purchased at the best price currently available.

These examples are shown for illustrative purposes only. In general, understanding order types can help you manage risk and execution speed. However, you can never eliminate market and investment risks entirely. It’s usually best to choose an order type based on your investment goals and objectives.

Sell Trailing Stop Order

With a sell trailing stop order, the stop price follows, or “trails,” the highest price of a stock by a trail that you set. If the stock falls below its highest price by the trail or more, your sell trailing stop order becomes a sell market order and the stock will be sold at the best price currently available.

 Example

You own MEOW. You think MEOW will rise in value, but want to help protect yourself in case it falls in value. If you set your trail to 5%, your stop price will always remain 5% below MEOW’s highest price.

MEOW is currently trading at $100 per share. Your stop price will start at $95, which is 5% lower than the current price.

  • If MEOW stays between $100 and $95, the stop price will stay at $95.
  • If MEOW rises to $110, the stop price will update to $104.50, 5% below the new highest price.
  • If MEOW falls to the stop price ($95) or lower, it triggers a sell market order. MEOW will be sold at the best price currently available.

These examples are shown for illustrative purposes only. In general, understanding order types can help you manage risk and execution speed. However, you can never eliminate market and investment risks entirely. It’s usually best to choose an order type based on your investment goals and objectives.

@Robinhood 20190822-930961-2814801

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