A Trailing Stop Limit Order combines the features of a Trailing Stop Order and a Limit Order, offering greater control over the price at which the order is executed.
Like a trailing stop order, the stop price adjusts as the market moves in your favour. However, once the stop price is triggered, the order becomes a limit order, meaning it will only be executed at the specified limit price or better, instead of being executed as a market order.
How Does a Trailing Stop Limit Order Work?
When you place a trailing stop limit order, you specify a trail amount (the distance from the current market price) and a limit price (the price at which the order will be filled once triggered).
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As the market price increases (for buy orders), the stop price follows the price movement, maintaining the same distance (trail amount).
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If the market price decreases (for sell orders), the stop price remains unchanged.
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Once the stop price is triggered, the order will be converted into a limit order, and the trade will only be executed if the market price is at or better than the limit price.
Examples of a Trailing Stop Limit Order
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You place a trailing stop limit order with a trail amount of £5 and a limit price of £55.
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If the asset is trading at £50, your stop price is set at £45.
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As the price rises to £60, the stop price adjusts to £55.
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If the price falls to £55, the order will become a limit order and will only be executed at £55 or better.
Why Use a Trailing Stop Limit Order?
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Price Control: With a trailing stop limit order, you can control the exact price at which your trade is executed, avoiding slippage that can occur with market orders.
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Risk Management with Price Control: The trailing stop limit allows you to lock in profits while managing risk by only executing the trade at a price you are comfortable with.
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Profit Lock-In with Protection: Similar to trailing stop orders, trailing stop limit orders help you protect profits, but with added control over execution price.
Limitations of Trailing Stop Limit Orders
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No Guarantee of Execution: If the market price moves past the limit price, the order may not be executed.
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Potential for Missed Opportunities: The limit price may not always be reached, especially in volatile markets, which could result in missing the trade altogether.
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Slower Execution: In fast-moving markets, the order may take longer to execute, or may not be filled at all if the price moves away from the limit.
On the Kinesis platform, you can place a Trailing Stop Limit Order from the Exchange tab.