Trailing orders are very similar to limit orders, but the trigger price of a trailing order keeps the position open when the market moves in your favor, and closes the position when it moves in the opposite direction. With a spot trailing order, you can place a preset order at a specific percentage away from the market price.
When the price moves in your favor, a trailing order keeps the trade open and continues to make money as long as the price moves in your favor to lock in profits. Trailing orders do not move in the opposite direction. When the price moves in the opposite direction by a specified percentage, the trailing order will be executed as a limit order. When the trade does not move in your favor, a trailing order can help you minimize losses and protect gains.
How do spot trailing orders work?
For a sell trade, the sell price should be higher than the last price. When the price rises, the trailing price rises with the last price and maintains a certain percentage interval. However, if the price falls, the trailing price stops following. If the price moves from its highest price, exceeds the predetermined trailing range and reaches the trailing price, a limit or market sell order will be placed on the order book.
A trailing buy order is the opposite of a trailing sell order.
For buy trades, the buy price should be lower than the last price. When the price falls, the trailing price falls with the last price and maintains a certain percentage interval. However, if the price rises, the trailing price will stop following. If the price moves from its lowest price, exceeds the predetermined trailing margin and reaches the trailing price, a limit buy order will be placed on the order book.
Note: The activation price and trailing margin must be met in order to activate the limit market order and trade.
Example
(1) Placing a trailing stop sell order for a sell trade
The market price of BTC/USDT is 8,500 USDT, and you place a trailing stop order with the following parameters:
Tracking margin: 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. When the price rises to 16,000 USDT, the trailing price will reach 15,200 USDT [last price * (1-trailing margin)].
When the price falls, the trailing price will stop following. When the price rises to the peak price of 18,000 USDT, the tracking price reaches 17,100 USDT. When the price falls, the tracking order price stops following again. When the price falls by more than 5% and reaches or exceeds the tracking price of 17,100 USDT, a sell order (8,600 USDT) will be placed on the order book.
Note:
Since the market price is 17,100, the sell order (8,600 USDT) will be executed immediately. The final selling price will be much higher than the limit price, and the profit will be 8,500 USDT. However, if you use a stop-limit order with the same parameters (stop price: 8,500 USDT, limit price: 8,600 USDT), the order will be executed immediately at 8,600 USDT. In contrast, a trailing stop order can maximize your profit.
(2) Placing a trailing stop buy order for a buy trade
The market price of BTC/USDT is 9,000 USDT, and you place a trailing stop order with the following parameters:
Tracking margin: 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. When the price drops to 8,500 USDT, the trailing price will reach 8,925 USDT [last price * (1 + trailing margin)].
When the price rises, the trailing price will stop following. When the price drops to the lowest price of 8,000 USDT, the trailing price will be 8,400 USDT. When the price rises, the trailing price will stop following again. When the price rises by more than 5% and reaches or exceeds the trailing price of 8,400 USDT, a buy order (8,900 USDT) will be placed on the order book.
How to place a spot trailing order?
There are two major conditions for activating a trailing order.
A trailing buy order will be triggered in the following cases:
Activation Price ≥ Low Price
Bounce Size ≥ Trailing Size
A trailing stop sell order will be triggered in the following cases:
Activation Price ≤ High Price
Bounce Size ≥ Trailing Size
1. Activation Price
The activation price is the desired price level at which the trailing stop is triggered. If the activation price is not set, the activation price will default to the market price.
To place a trailing stop buy order, the activation price must be below the market price. Conversely, the activation price must be above the market price to place a trailing sell order.
The high/low price of the market must reach or exceed the activation price to meet the condition.
2. Trailing Size
The trailing size is the percentage of the opposite direction movement you can tolerate. The trailing size can be selected from 0.1% to 20.0%, and users can set it manually in the "Trailing Size" field, or quickly select the "1%" or "2%" options.
3. Limit Market 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 a desired limit price, or you can set the market price to execute the order trade after it is triggered.
Important Tips:
The process of setting the optimal trailing increment and activation price can be difficult.
For a trailing stop to work, the trailing increment should be neither too small nor too large; the activation price should be neither too close to the market price nor too far away. When the trailing increment is too small or the activation price is too close, the trailing stop is close to the opening price and can be easily triggered by daily market movements. The trade does not have room to move in the favorable direction before any meaningful price change occurs. The trade will be closed/exited at the time when the market has just temporarily dropped and then recovered, resulting in a losing trade.
When the trailing increment is too large, the trailing stop can only be triggered by extreme market movements, which means you are taking unnecessary and significant risks of losses.
During volatile periods, a higher trailing increment is usually more worthwhile, while in normal market conditions, a lower trailing increment is more worthwhile.
There is no ideal optimal trailing increment and activation price. As market prices are constantly fluctuating, it is recommended that you adjust your trailing stop strategy from time to time.
