How to Use Spot Trailing Stop Order

2022-04-12 03:32

Spot Trailing Stop Order

Frequently Asked Questions

Spot Trailing Stop Order

Tutorial Video

What is a Spot Trailing Stop Order?

A trailing stop order is very similar to a stop-limit order, but a trailing stop order’s trigger price will follow your position when the market moves favorably, and will close the position if the market moves adversely against you. With a spot trailing stop order, you can place a pre-set order at a specific percentage away from the market price.

When the price moves favorably, a trailing stop order locks in profit by enabling a trade to remain open and continue to profit as long as the price moves in the favorable direction. The trailing stop does not move back in the other direction. When the price moves in the opposite direction by a specified percentage, the trailing stop order will be executed as a limit order. When a trade does not move in the favorable direction, a trailing stop order can help you minimize losses and protect gains.

How does a Spot Trailing Stop Order work?

For a long trade, the selling price is supposed to be higher than the last price. When the price goes up, the trailing price moves up along with the last price and keeps a certain percentage interval. However, the trailing price will stop following if the price drops. A limit sell order will be placed on the order book if the price moves more than the predetermined trailing delta from its highest price and reaches the trailing price.

A ”buy" trailing stop order is the opposite of a “sell” trailing stop order.

For a short trade, the buy price is supposed to be lower than the last price. When the price drops, the trailing price moves downward with the last price and keeps a certain percentage interval. However, the trailing price will stop following if the price goes up. A limit buy order will be placed on the order book if the price moves more than the predetermined trailing delta from its lowest price and reaches the trailing price.

Note: Activation price and trailing delta must be fulfilled to activate a limit order to close the trade.

Examples

(1) Placing a sell Trailing Stop Order for a long trade

The market price of BTCUSDT is 8,500 USDT and you place a trailing stop order with the following parameters:

Trailing Delta: 5%
Activation Price: 8,500 USDT
Limit Price: 8,600 USDT

The trailing price is 8,075 USDT and the last price is 8,500 USDT. The trailing price will reach 15,200 USDT [Last Price* (1 - trailing delta)] when the price increases to 16,000 USDT.

The trailing price will stop when the price moves down. When the price moves to its peak price at 18,000 USDT, the trailing price reaches 17,100 USDT. When the price moves down, the trailing stop price stops again. When the price moves down by more than 5%, reaching or exceeding the trailing price of 17,100 USDT, a sell order (8,600 USDT) will be issued to the order book.

Note:

Since the market price is 17,100, the sell order (8,600 USDT) will be filled immediately. The final sell price will be much higher than the limit price with an 8,500 USDT profit. However, if you used a stop-limit order with the same parameters (stop price: 8,500 USDT, limit price: 8,600 USDT), the order will be filled immediately at 8,600 USDT. In comparison, trailing stop orders can maximize your revenue.

(2) Placing a buy Trailing Stop Order for a short trade

The market price of BTCUSDT is 9,000 USDT and you place a trailing stop order with the following parameters:

Trailing Delta: 5%
Activation Price: 9,000 USDT
Limit Price: 8,900 USDT

The trailing stop price is 9,450 USDT and the last price is 9,000 USDT. The trailing price reaches 8,925 USDT [Last Price* (1 + trailing delta)] when the price drops to 8,500 USDT.

The trailing price will stop when the price rises. When the price moves to its lowest price at 8,000 USDT, the trailing price will be 8,400 USDT. When the price rises, the trailing price stops again. When the price moves up by more than 5%, reaching or exceeding the trailing price of 8,400 USDT, a buy order (8,900 USDT) will be issued to the order book.

Differences between Spot Trailing Stop Orders and Futures Trailing Stop Orders

1. Spot Trailing Stop Order uses "trailing delta" to represent the specific percentage of movement in the opposite direction that you are willing to tolerate. In contrast, Future Trailing Stop Order uses "callback rate".

2. The spot trailing delta’s range is within 0.1% - 20.0%, while the future’s callback rate range is only within 0.1% - 5.0% (Please refer to the actual limit range on the trading page).

3. When trigger conditions are fulfilled, Spot Trailing Stop Order will be executed as a limit order, and Future Trailing Stop Order will be executed as a market order. Therefore, a limit price is required to place a Spot Trailing Stop Order.

How to Place a Spot Trailing Stop Order?

There are two conditions to activate a trailing stop order.

A buy trailing stop order will be triggered if:

Activation Price ≥ Lowest Price
Rebound Rate ≥ Trailing Delta

A sell trailing stop order will be triggered if:

Activation Price ≤ Highest Price
Rebound Rate ≥ Trailing Delta

1. Activation Price

Activation price is your desired price level that triggers the trailing stop. If no activation price is set, the activation price will be the market price by default.

To place a buy trailing stop order, the activation price must be lower than the market price. Conversely, the activation price must be higher than the market price to place a sell trailing order.

The market's highest/lowest price must reach or exceed the activation price in order to meet the condition.

2. Trailing Delta

Trailing Delta is the percentage of movement in the opposite direction you are willing to tolerate. The Trailing Delta ranges from 0.1% to 20.0% by placing the rate manually in the “Trailing Delta” field. Alternatively, options such as “1%” or “2%” are available for quick selection.

3. Limit Price

The limit price determines the order price submitted to the market after the trailing stop order is executed as a limit order. You can set your desired limit price.

Important Notes:

Setting an optimal trailing delta and activation price could be a daunting process.
For a trailing stop to be effective, a trailing delta should neither be too small nor too large; and the activation price should neither be too close nor too far away from the market price. When the trailing delta is too small or the activation price is too close, the trailing stop is too close to the entry price and is easily triggered by regular daily market movements. There is no room for a trade to move in the favorable direction before any meaningful price moves occur. The trade will be closed/exited at a point where the market just took a temporary dip and then recovered, thus resulting in a losing trade.
When the trailing delta is too large, the trailing stop can only be triggered by extreme market movements, which means you are taking on risks of unnecessarily significant losses.
A higher trailing delta is generally a better bet during volatile periods, while a lower trailing delta is preferable during normal market conditions.
There is no ideal optimal trailing delta and activation price. You are advised to revise your trailing stop strategy from time to time due to the constant price fluctuations in the market. You should always carefully consider whether a trade is consistent with your risk tolerance, investment experience, financial condition, and other considerations that may be relevant to you. Other than the range of price changes, always determine your trailing delta and activation price based on your targeted profitability levels and acceptable losses within your capacity.

1. What is the difference between a stop limit order and a trailing stop order?

A trailing stop order has a variable stop price that can be set at a certain percentage or amount away from the current market price. It aims to protect gains as the order can continue to profit as long as the price is moving in a favorable direction. When the market price hits the stop price in the opposite direction, the system will automatically place a limit order at the limit price the user set to close the order.

2. How to calculate the trailing stop price?

For buy orders, the trailing stop price will be the market's new lowest price * (1 + trailing delta).
For sell orders, the trailing stop price will be the market's new highest price * (1 - trailing delta).

3. What is the activation price?
Similar to a stop-limit order, the activation price is the price at which the trailing stop order is activated. After the stop price is reached, the trailing delta will be active. Once the delta is reached, it will place a limit order on the order book with the limit price you set.

For example, user A places a BNBBUSD trailing stop order with the following parameters:

Limit price: 300 BUSD
Activation price: 280 BUSD
Trailing delta: 0.5%

To activate the 0.5% trailing delta, the market price must first reach the activation price. When BNB reaches 280 BUSD, the trailing order will be activated and a limit order of 300 BUSD will be placed on the order book.
4. Why wasn’t my limit order filled after the trailing stop order conditions were triggered?
Please note that there is no guarantee that your limit order will be executed. If the market price does not reach the limit price, your trade will remain unfilled on the order book.

It also depends on the market condition for your limit order to be filled. If the market price fluctuates rapidly within a short period, the limit order may not be filled as there were not enough counterparty orders to match your order. Please note that the orders on the order book are filled in chronological order.

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