A trailing stop order is an order in which the stop trigger price is specified in terms of points or a percentage above or below a security's market price (Bid, Ask, or Last). If the security's price moves in a favorable direction after the order is placed, the stop trigger price will adjust itself automatically.
There are three variables specific to Trailing Stop orders:
1. The Trigger. The trigger price adjusts automatically as the security's price moves in a favorable direction. So, if you are selling and the price is moving up, the trigger will also move up. When the price moves down, the trigger will not adjust.
2. The Peg. As the trigger in a sell order moves up, it will reach higher and higher levels. Think of this as a high water mark level. It goes up, but does not move down. When you initially enter the order, the peg (the high water mark level) is either the current Bid, Ask, or Last trade (you determine which one).
3. The Increment. This is the fixed distance between the Peg and the Trigger. Once the market price (Bid, Ask, or Last) goes over the increment, your order is sent to the market as a Market order.
Here is a graphical illustration of a sell trailing stop. The trigger for a Trailing Sell Stop will always be below current market price. The trigger for a Trailing Buy Stop will always be above current market price. This illustrates a Trailing Sell Stop:
This is how TradeKing Trailing Stop order entry works
And now some disclaimers
Trailing Stops are considered "Advanced Orders".
All trailing stop orders are held at TradeKing until triggered. Once the security's market price crosses the current stop price, the order is triggered and sent to the market center as a market order and then executed at the prevailing market price. If a Trailing Stop DAY order is not triggered and executed on the day it is entered, when the market closes its status will show as "canceled".
: listed, Nasdaq NMS, and Nasdaq SmallCap securities and equity options listed by the Options Clearing Corporation (OCC).
Non-Eligible Securities: Any non-marginable security such as Pink Sheet securities, OTC Bulletin Board securities, equity securities at prices less than $1.00 per share (minimum applies to the bid price for sell orders and to the ask price for buy orders, and to the price condition specified - bid, ask or last price - for contingent orders based on an equity), rights and warrants. These criteria will be checked after an order is submitted.
Trading Halts: Advanced Orders are not accepted for securities that are subject to an SEC, FINRA, or exchange trading halt. Advanced Orders are not triggered once a halt is received. If an Advanced Order is triggered and sent to market prior to a halt and not executed, it will remain at the market center and be executed as soon as the halt is lifted. TradeKing is not responsible for execution quality in the event of such trading halts.
: Advanced Orders will be accepted at any time, but dynamic prices will only be monitored and updated during normal market sessions. Advanced Orders may only be triggered during normal market sessions. No Advanced Orders activity will occur during Extended Hours trading sessions, except order placement or cancellation requests.
Quote data is compared in thirty second cycles. If the trigger is not hit during that check, the order will not be released to the market. Moving contingent factors defined by the user will be reset only if the quote data between comparisons moves by the smaller of .025 points or 1% of the security price. If a Trailing Stop order is placed after hours and/or there is no Bid/Ask, the trigger will be be based on the Last price of the previous close.
Advanced orders are placed at TradeKing on a Not Held basis. When the conditions are met they are automatically released to the marketplace as open orders. Certain Advanced orders may not be eligible for execution when the condition is met (examples: sell stop orders entered above the market; orders conflict with other open orders; you do not have enough buying power in your account). You are solely responsible for reviewing and maintaining your Advanced and non-Advanced orders in order to avoid conflict or duplication of orders. TradeKing does not guarantee that conflicting orders will be prevented, and resolution of conflicting or incorrect contingent orders may be at your risk and expense. Advanced orders can be held indefinitely until you decide to cancel it.
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