A common type of order entry used by investors to help protect profits and limit losses on stock and option positions is a stop order Read How Stop Orders work. Just like stop orders, trailing stops can be entered as a sell to help protect the downside on a long position, or as a buy to help protect a short position against a loss on the upside. When entering a trailing stop the investor chooses a defined point or percentage distance away from the most favorable quote.

The most favorable quote may be the last trade, the bid price or the ask price depending on market conditions when the order is being entered. Trailing stop orders differ from ordinary stop orders in that, as the market price changes, the trailing stop order is automatically adjusted. In the case of ordinary stop orders, traders must cancel existing stops and replace them with new stops in order to keep pace with the market.

This order provides downside protection at the current moment and for the current price. New trigger points are updated without any effort by the trader. After you have entered an option or stock order, click on the Advanced Orders box, select Trailing Stop , and then click the Preview button. Select Direction Up or Down and then enter either the point or the percentage movement in the Amount box. If you bought an option or stock, and would like protection from a decline in the value of the position, you would select the down direction.

If you are short the option or stock and want to help protect the position against an increase in value, you would select the up direction. When entering trailing stop orders on options, keep in mind the trigger price is activated by the actual price of the option, not the underlying stock price. This is a very important point if the option is a put, because the value of the put moves in the opposite direction of the value of the underlying stock.

This is not true for call prices; they actually move in the same direction as the underlying stock price. The next step is to choose the Type of trailing stop you are using.

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If the amount you entered was in regards to a point i. The last step is to choose the duration of the trailing stop, either for the day or good until canceled. Then press the Preview Order button. Do a final review of the order you are about to place, and make any changes necessary before clicking the Place Order button.

To status your order immediately after it has been placed, click on the Check Order Status button while viewing the Trade Confirmation. The order can also be reviewed later by clicking on the Trade tab, then selecting Order Status.

Trailing stop orders are held separately from the standard orders until they are triggered. In this example we are using a dollar amount to trigger the trailing stop, but it is important to note that a percentage move up or down is also a choice.

Changing activation prices on ordinary stop orders is time consuming. Trailing stop orders automatically make these adjustments without the inconvenience of continuously canceling the old order and entering replacement orders. Trailing stops were designed to make order entry simple for the optionsXpress client. Please review the contingent order risk disclosure before employing this strategy.

optionsXpress | Xpress Guides: How to Place Trailing Stop Orders

Stop orders enable you to choose the price at which an order is activated. For example, a sell stop order entered with an activation price of 40 means an order to sell at market will be activated when the stock trades at 40 or lower. When the order hits the marketplace, it is filled at the best available price.

You can also set a stop limit order, in which you specify the price at which the stop order is activated, and a limit price you'd like to get once the order is activated. Please review the risks associated with this type of trade. Stop Order — Like a stop order, a Stop-Limit Order will be triggered by a move up or down to a particular price level.

Once that level is reached, the order becomes a limit order, which must be executed at a specific price. In contrast, a regular stop order will be executed at the market price rather than at a specified price. If you have questions at any time, email us and we'll be happy to research your request. Advanced option strategies involve additional risks. Content and tools are provided for educational and informational purposes only.

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Trader's Tips Account Account Positions Acct. Why Use Trailing Stops? Select Trailing Stop After you have entered an option or stock order, click on the Advanced Orders box, select Trailing Stop , and then click the Preview button.

Enter Trailing Stop Specifics Select Direction Up or Down and then enter either the point or the percentage movement in the Amount box. Review Order Do a final review of the order you are about to place, and make any changes necessary before clicking the Place Order button. Confirmation After you place the order, you will see a confirm page assuring you that your order was sent.

In summary Changing activation prices on ordinary stop orders is time consuming. How Stop Orders Work — Working Definitions Stop orders enable you to choose the price at which an order is activated. Xpress Library Trader's Tips Account Account Positions Acct.