Order types. Flashcards
What is a trailing stop order?
A trailing stop order is an order set to buy or sell a security when its price moves a certain percentage or dollar amount away from its highest or lowest price, helping to protect profits or limit losses.
How does a trailing stop order work when selling a stock you own?
It sets a stop price a fixed amount below the stock’s highest price. If the stock price rises, the stop price adjusts upward. If the stock price falls to the stop price, the order is triggered to sell.
How does a trailing stop order work when buying a stock?
It sets a stop price a fixed amount below the stock’s highest price since the order was placed. If the stock price rises, the stop price adjusts upward. If the stock price falls to the stop price, the order is triggered to buy.
Why use a trailing stop order for buying?
To enter a position as the price is rising while limiting the maximum price you’re willing to pay if the price starts to drop.
If you own a stock at $100 with a $10 trailing stop, and the price rises to $120, what happens to the stop price?
The stop price moves up to $110, maintaining the $10 trailing distance below the highest price reached.
If you set a trailing stop to buy a stock at $5 below its highest price, and the stock’s highest price since order placement is $60, at what price will the buy order trigger?
The buy order will trigger if the stock price falls to $55.
