What is a trailing stop order?
A trailing stop order is a modification of a typical stop loss order that will trigger at a defined percentage or absolute amount away from the asset's current reference price (Index, Last, or Mark).
In a trailing stop order, a Market order will be placed when the price has reverted from the most favorable peak price by the specified offset amount.
To use this order type, two parameters must be met:
- •Trailing offset: This is the offset from the reference price (Index, Last, or Mark*) at which a market order will be placed. This can be entered as either a set percentage or a nominal quote currency offset (e.g. USD).
- •Order Quantity: This is the total amount of your order, the amount you are trying to buy or sell.
Trailing stop orders are available as primary or conditional close orders via the Kraken Pro order form.
Why use a trailing stop?
A trailing stop is designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is moving favorably. The order triggers when the price reverts from a local price peak by a specified percentage or absolute amount.
Trailing stop Buy orders follow the market down and trigger after price rises by a specified amount from the lowest price after order entry.
Trailing stop Sell orders follow the market up and trigger after price declines by a specified amount from the highest price after order entry.
This offers traders a level of protection when trading on Kraken (with or without the use of margin) while also following the market on favorable price moves to lock in profits.
Note: Up to 20 trailing orders can be active at the same time on a single account.
Long example
To close a long position, you must place a trailing stop Sell orderbelow the current market price. Let's say the current price of BTC is $20,000 and you are long 1 BTC. You use a trailing stop Sell order for protection from price declines and to profit from price rises.
You submit a trailing stop Sell order with a % Trailing offset of 5% for a quantity of 1 BTC:
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- •If the price increases after order entry at $20,000 to a high of $22,000, and then declines by 5% or $1,100, the stop loss order will trigger at a price of $20,900 and submit a market order for 1 BTC to exit the position.
You submit a trailing stop Sell order with a USD trailing offset of $1000 for a quantity of 1 BTC:
- •If price does not increase after order entry at $20,000, and declines by $1,000, the stop loss order will trigger at a price of $19,000 and submit a market order for 1 BTC to exit the position.
- •With an order entry at $20,000, if price increases to a high of $22,000, and then declines by $1,000, the stop loss order will trigger at a price of $21,000. Submitting a market order for 1 BTC to exit the position.
Short example
To close a short position, you will place a trailing stop Buy orderabove the current market price. Let's say the current price is $20,000 and you are short 1 BTC. You use a trailing stop Buy order for protection from price increases and to profit from price declines.
You submit a trailing stop Buy order with a % trailing offset of 5% for a quantity of 1 BTC:
- •If price does not decline after order entry at $20,000, and increases by 5% or $1,000, the stop loss order will trigger at a price of $21,000 and submit a market order for 1 BTC to exit the position.
- •If price declines after order entry at $20,000 to a low of $18,000, and then increases by 5% or $900, the stop loss order will trigger at a price of $18,900 and submit a market order for 1 BTC to exit the position.
You submit a trailing stop Buy order with a USD trailing offset of $1,000 for a quantity of 1 BTC:
- •If price does not decline after order entry at $20,000, and increases by $1,000, the stop loss order will trigger at a price of $21,000 and submit a market order for 1 BTC to exit the position.
- •If the price declines after order entry at $20,000 to a low of $18,000, and then increases by $1,000, the stop loss order will trigger at a price of $19,000 and submit a market order for 1 BTC to exit the position.