Trailing stop order

A trailing stop order lets you track the price of a stock before triggering a market order if the stock reaches the trailing stop price. Investors often use trailing stop orders to help limit their maximum possible loss or as part of an exit strategy.

With a trailing stop order, the trailing stop price follows, or trails, the price of the stock by a trail that you specify. If the stock’s price moves in a favorable direction, the trailing stop price will move with the stock. If the stock’s price moves in an unfavorable direction, the trailing stop price will stay the same.

If the stock’s price reaches the trailing stop price, a market order is triggered and is executed at the best price currently available.

Keep in mind, short-term fluctuations in a stock’s price can trigger a trailing stop order. Also, you aren’t guaranteed a price with a trailing stop order.

Buy trailing stop order

With a buy trailing stop order, the stop price follows, or trails, the lowest price of a stock by a trail that you set. If the stock rises above its lowest price by the trail or more, it triggers a buy market order and is executed at the best price currently available.

Example

You want to buy YOWL, but you think it will fall in value and want to wait to purchase it. You also think that if YOWL goes up by a defined amount (let’s say 5%) it may go even higher. In an attempt to help minimize potential costs, you set your trail to 5%. Your stop price will always remain 5% above YOWL’s lowest price.

YOWL is currently trading at $110 per share. Your stop price will start at $115.50, which is 5% higher than the current price of YOWL.

• If YOWL stays between $110 and $115.50, the stop price will stay at $115.50.

• If YOWL falls to $100, the stop price will update to $105, 5% above the new lowest price.

• If YOWL rises to the stop price ($105) or higher, it triggers a buy market order. YOWL will be purchased at the best price currently available.

This example is shown for illustrative purposes only. Note that in some cases, only a portion of your order may execute if shares aren't available at certain prices. Understanding order types can help you manage risk and execution speed. However, you can never eliminate market and investment risks entirely. It’s best to choose an order type based on your investment goals and objectives.

Sell trailing stop order

With a sell trailing stop order, the stop price follows, or “trails,” the highest price of a stock by a trail that you set. If the stock falls below its highest price by the trail or more, your sell trailing stop order becomes a sell market order and the stock will be sold at the best price currently available.

Example

You own YOWL. You think YOWL will rise in value, but want to help protect yourself in case it falls in value. If you set your trail to 5%, your stop price will always remain 5% below YOWL’s highest price.

YOWL is currently trading at $100 per share. Your stop price will start at $95, which is 5% lower than the current price.

• If YOWL stays between $100 and $95, the stop price will stay at $95.

• If YOWL rises to $110, the stop price will update to $104.50, 5% below the new highest price.

If YOWL falls to the stop price ($104.50) or lower, it triggers a sell market order. YOWL will be sold at the best price currently available.

This example is shown for illustrative purposes only. Note that in some cases only a portion or none of your order may execute if shares aren’t available at certain prices. Understanding order types can help you manage risk and execution speed. However, you can never eliminate market and investment risks entirely. It’s best to choose an order type based on your investment goals and objectives.

Over-reserving buying power

To protect your account against overspending, we’ll over-reserve your buying power for stop buy orders and trailing stop buy orders.

• For Good-For-Day orders that you enter during market hours, we’ll reserve an additional 5% of buying power.

• For other orders, we’ll reserve an additional 10% of buying power.

Keep in mind, these percentages might change in response to extreme volatility.