Trailing stops
What is a trailing stop?
A trailing stop is typically used to reduce or close an existing position. Its trigger price follows the mark price as it moves in favor of the position. When the mark price reverses by the retracement you set, it triggers a market order to close the selected size.
How does a trailing stop work?
A short trailing stop tracks the highest mark price reached since activation and triggers when the mark price falls from it by the set retracement. This closes a long or opens a short. A long trailing stop tracks the lowest mark price and triggers when the mark price rises from it by the set retracement. This closes a short or opens a long in the second.
Activation price: Optional. Tracking begins when the mark price reaches this level or immediately if no activation price is set.
Watermark: The highest mark price reached for a short trailing stop, or the lowest for a buy trailing stop, recorded since activation.
Retracement: The reversal from the watermark required to trigger the order, set as a fixed price distance or a percentage.
Trigger price: The price at which the order submits a market order for the selected size. It moves only when a new watermark is recorded, and stays unchanged during a reversal.
Order side
Watermark
Trigger price (distance)
Trigger price (percentage)
Short (close long, open short)
Highest mark price
Watermark − distance
Watermark × (1 − rate)
Long (close short, open long)
Lowest mark price
Watermark + distance
Watermark × (1 + rate)
Example 1: Closing a long with a fixed distance
You have a long position, and the mark price is at 100. You place a trailing stop with a retracement of 10 and no activation price, intending to close the long once the market stops rising. The order begins tracking immediately from the current mark price. It follows the highest mark price reached, and triggers a market sell when the mark price falls from that high by 10.
Mark price
Highest mark
Trigger price
What happens
100
100
90
Tracking starts
110
110
100
New high raises the trigger
105
110
100
Trigger stays unchanged
120
120
110
New high raises the trigger again
110
120
110
Market short is triggered to close the long
Example 2: Closing a short with a percentage
You hold a short position and the mark price is at 120. You place a trailing stop with an activation price of 100 and a retracement of 10%, intending to close the short once the market stops falling. The order rests without tracking until the mark price reaches 100. From there it follows the lowest mark price reached, and triggers a market buy when the mark price rises from that low by 10%.
Mark price
Lowest mark
Trigger price
What happens
120
-
-
Waiting for activation
100
100
110
Tracking starts, no long is triggered
80
80
88
New low lowers the trigger
86
80
88
Trigger stays unchanged
88
80
80
Market long is triggered to close the short
Example 3: Opening a long with fixed-distance retracement
The mark price is at 120. You place a long trailing stop with an activation price of 100 and a retracement of 10, intending to open a long once the market stops falling. The order rests without tracking until the mark price reaches 100. From there it follows the lowest mark price reached, and triggers a market buy when the mark price rises from that low by 10.
Mark price
Lowest mark
Trigger price
What happens
120
-
-
Waiting for activation
100
100
110
Tracking starts, no buy is triggered
80
80
90
New low lowers the trigger
88
80
90
Trigger stays unchanged
90
80
90
Long is triggered and position is opened
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