Trailing Stop

Imagine a Stoploss order that continuously improves its Stop Price by a pre-defined deviation.

A "Trailing Stop" intelligent order has similar characteristics as a Stoploss order with the difference in that it allows for an automatic change in the stop price based on pre-defined parameters (i.e. "deviation from stop price").

• If the current reference price drops to the stop price, the order is activated and the shares are sold (for a sell Trailing Stop order) or bought (for a buy Trailing Stop order).
• For a sell Trailing Stop order, the stop price is moved upwards when the price of the security increases and reaches a new maximum during order validity. If the price drops or remains unchanged, the stop price remains unchanged and the highest achieved value remains in place.
• For a buy Trailing Stop order, the stop price is moved by the defined deviation downwards when the price of the security decreases and reaches a new minimum during order validity. If the price increases or remains unchanged, the stop price remains unchanged and the lowest achieved value remains in place.
• After activation, a Trailing Stop order behaves as a market-type order, which means that its tries to sell (or buy in the case of a buy order) the shares at any price. Emphasis is placed on closing open positions as quickly as possible. A variant on this order where a limit price is entered is known as a Trailing Limit order.

Example:

An investor buys a stock at CZK 100 and then enters a sell Trailing Stop order with a defined "Stop Price Deviation" of CZK 5.

The investor's primary objective is to limit the risk of a loss of invested funds and to allow for an automatic increase in the stop price so that it remains CZK 5 lower than the highest price achieved during order validity. If the price drops below the stop price, the shares are sold.

Direction: sale

Price when order submitted: CZK 100

Deviation from stop price: CZK 5

First generated stop price: CZK 95 (i.e. 100 - 5)

Objective: sell the share if the price drops to the stop price level. At the same time, the investor wants to maximize the stop price in order to sell below the local maximum.