What is a Trailing Stop Order?
A trailing stop order allows users to place a preset order when a larger trail variance occurs. It helps users secure profit and limit the loss when the price moves in a direction unfavourable to users. On the other hand, it allows an order to remain open and continue to profit as long as the price moves in the direction that users consider favourable.
The trailing stop moves by a specified percentage or a specified amount when the price moves favourably, but the trailing stop does not move back in the other direction. Instead, it will close the order at market price when the price moves in the opposite direction by the percentage or amount set by users.
1. Trail Variance
Trail variance is the condition to determine whether a strategy will be triggered by using it to calculate the actual trigger price. The trail variance allows two input types: the ratio and the variance (Var.). The ratio is the percentage of the price movement; the variance is the price distance (USDT-M unit is "USDT"; COIN-M unit is "USD").
2. Activation Price
Activation price is the activation condition of a trailing stop order. The order will be activated when the price (subjected to "Price Type") reaches or exceeds the activation price. The system will only start calculating the actual trigger price upon activation. The order will be activated upon placement if the activation price is not defined.
3. Price Type
Users can select either "Last price", "Fair price", or "Index price" as a trigger. For example, if "Fair price" is set, the trailing stop will be activated when the Fair Price reaches or exceeds the activation price even though the Last Price does not reach the activation price.
Assume the current last price of BTCUSDT Futures is 30,000 USDT. A user places a sell trailing stop order for a long trade with the parameters below:
- Trail variance: 5%;
- Activation price: 31,000 USDT;
- Price type: Last Price.
When the price surpasses 31,000 USDT, the activation price, the trailing stop order is activated. The calculated trailing stop price is 29,450 USDT [Formula: Last Price x (1 - Trail Variance Ratio)]. When the price increases to 32,500 USDT, a new trailing stop price is formed at 30,875 USDT. The trailing stop price stops when the price declines.
When the price surges to 35,000 USDT, a new trailing stop price is formed at 33,250 USDT. When the price falls, the trailing stop price remains the same price level. A sell order will be triggered at market price to close the position when the price retraces more than 5%, reaching and exceeding the trailing stop price at 33,250 USDT.
Two conditions were met to trigger the trailing stop order:
- The last price reaches the activation price (31,000 USDT) to activate the order;
- Rebound Variance (5%) ≥ Trail Variance (5%).
= (Highest Price - Rebound Price) / Highest Price
= (35,000 - 33,250) / 35,000
- Before a trailing stop order is triggered, the user’s margin or positions will not be frozen;
- Trailing stop orders may fail to be triggered due to drastic market fluctuations, price limits, insufficient margins, position limits, non-trading status, or other system issues;
- A market order will be placed once a trailing stop order is triggered, but the order may fail to be filled. Please note whether the order can be successfully filled or not wholly depends on the market conditions.