Trailing Stop Limit Order vs Trailing Stop Loss: A Comprehensive Guide

As you navigate the world of trading, you may have come across two terms that can be easily confused: Trailing Stop Limit Order and Trailing Stop Loss. The main difference between the two lies in their execution, with the former allowing you to limit your potential losses while the latter aims to lock in profits.

A Trailing Stop Limit Order can be set to buy or sell a security once it reaches a specified price, but only if the order can be executed at or better than the specified price. For example, if you set a Trailing Stop Limit Order to buy a stock at $50, but the price only reaches $49.50, the order will not be executed.

In contrast, a Trailing Stop Loss can be set to automatically close a trade when the price moves against you by a certain percentage or amount, limiting your losses. This can be especially useful for traders who are new to the market or those who are looking to minimize their risk.

The key to understanding the difference between these two orders is to recognize that a Trailing Stop Limit Order provides more control over the execution of the trade, while a Trailing Stop Loss provides a safety net to limit potential losses.

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A trailing stop is a type of order that allows you to limit your potential losses by automatically closing a trade when the price moves against you.

It's a flexible tool that can be adjusted to fit your investment strategy.

A trailing stop is usually set at a percentage of the stock's price movement, such as 10% or 20%.

A trailing stop limit order is a type of order that combines the benefits of a stop limit order with a trailing stop.

It's a way to limit your losses and lock in profits by setting a stop price that follows the price movement of your asset.

The trailing stop limit order is typically set at a percentage of the asset's price movement, such as 10% or 20%.

For example, if you buy an asset and it rises by 10%, your trailing stop limit order will automatically adjust to 10% above the new price.

This means that if the asset price falls by 10%, the stop price will be triggered and the order will be executed.

A trailing stop limit order can be set to trail at a specific rate, such as 5% or 10%, or it can be set to trail by a specific amount, such as $1 or $5.

This can be useful if you want to limit your losses or lock in profits, but you're not sure how far the asset price will move.

For instance, if you buy an asset and it rises by 20%, you can set a trailing stop limit order to trail by 10% above the new price, which means that if the asset price falls by 10%, the stop price will be triggered and the order will be executed.

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A trailing stop loss is a type of stop loss that adjusts its position as the price of an asset moves in your favor. This means you can lock in profits and limit potential losses.

The trailing stop loss is typically set at a percentage of the asset's price, such as 10% or 20%. For example, if the asset's price is $100 and you set a 10% trailing stop loss, the stop loss will be triggered if the price falls to $90.

As the asset's price increases, the trailing stop loss adjusts its position to lock in profits. This helps to minimize potential losses if the price reverses.

Using a trailing stop order is a smart way to limit losses and preserve profits. It's a setup that can help you adapt to changing market conditions.

For sell orders that use a percentage as the trailing amount, the point distance between the security's price and the trigger price will widen as prices move higher. This means you'll need to stay on top of your orders to adjust as needed.

To understand how a trailing stop order works, let's consider an example. If you set a trailing stop order with a percentage of 10% for a sell order, the point distance between the security's price and the trigger price will increase as prices rise.

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Here are some key things to keep in mind when using a trailing stop order:

By using a trailing stop order, you can potentially limit losses and preserve profits. It's a setup that can help you navigate market fluctuations with confidence.

A trailing stop limit order offers traders more control over their trades, but it can be risky if the price falls fast.

You need to consider whether the extra control is worth the potential risks. Trailing stop limit orders can be executed only on the current limit level or better, which means your entire order may not be executed if the security is in a free-fall.

If you trade liquid markets, the risk of not being able to find buyers at a suitable price is very low. However, if you trade illiquid markets, this risk can be a significant issue.

A trailing stop loss order, on the other hand, creates a market order that will close your position at market price when the trailing stop loss level is reached. This can be a more straightforward option, but it may not offer the same level of control as a trailing stop limit order.

You should weigh the pros and cons of each option and consider your trading goals and risk tolerance before making a decision.

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A trailing stop loss is a dynamic stop price that moves with the market, but it doesn't have a fixed price. It continuously adjusts itself as the market moves.

You can calculate a trailing stop loss by setting it a certain distance from the highest high or lowest low, depending on whether you're going long or short.

There's no guarantee that a trailing stop-limit order will be successfully placed after it's triggered, as there may be insufficient buying power or positions to complete the order.

A limit order is automatically placed by the system as soon as the stop price is hit, but there's no guarantee it will be filled. If it's not filled within the Time-in-force, it will be canceled automatically.

The trigger conditions of a trailing stop-limit order won't be effective again after it's triggered, so you'll need to place a new order if necessary.

The system will display the order details in the original trailing stop-limit order for clients' convenience.

In a trailing stop loss, the stop price moves with the market price, so if the price rises, the stop price rises too.

You can set a trailing stop loss 50 cents below the maximum price, as seen in the example of purchasing 1,000 shares of a security at $50.

A 3% profit can be made if the price dips to the new stop price after a price increase, as demonstrated in the first example.

If the market price falls to $49.50, the trailing stop loss will trigger and an order will be made to sell the shares at market value.

However, if the price of the security rises to $52, the stop loss will move along with the maximum price to $51.50, allowing for a potential 3% profit.

In a trailing stop limit order, you can set a limit order to buy or sell a security at a specific price, as seen in the example of purchasing 1000 shares of a security at $50.

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The limit is placed 20 cents below the stop loss, so if the stop loss is triggered, the limit order will be to sell the security at or above $51.30.

The stop price in a trailing stop limit order does not change when the market price rises, it only changes when the market price falls, as shown in the example of stock XYZ.

A 50% trailing ratio means that the stop price will be 50% of the market price, so if the market price is 10, the stop price will be 15.

The spread in a trailing stop limit order is the difference between the stop price and the limit price, which is 1 in the example of stock XYZ.

A buy limit order will be submitted as soon as the stop price is hit, but before it fills, the stop price will be adjusted if the market price falls, as seen in the example of stock XYZ.

The stop price will be adjusted to 12 if the market price falls to 8, and a buy limit order set at 13 will be submitted automatically to the clearing broker.

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