When adding a trailing stop on an open position, there are three elements to take into consideration:
- The stop level: This can be considered as a normal stop loss. When you add a trailing stop to an open position, your trailing stop is not active immediately. The market needs to move in your favour by the step distance for the trailing stop to be activated. If the market moves far enough against you before your trailing stop is activated, your position will be closed at this stop level.
- The stop distance: This will be the distance between your trailing stop and the market level once your trailing stop is activated. The trailing stop will maintain this stop distance as it tracks the market.
- The step distance: This is the number of points the market needs to move in your favour for the trailing stop to be adjusted upward or downward, depending on whether you are going long or short.
When adding a trailing stop to a new position, its activation level is calculated as:
Stop level + stop distance + step distance (when long)
Stop level - stop distance - step distance (when short)
It is very important to remember that for a trailing stop to be added to an open position on our platform, the activation level must always be above the current market price when long, and below it when short.
Let’s suppose you are adding a trailing stop on a Germany 40 long position, currently trading at 10,468.6.
You add a stop level at 10450.6, set your stop distance at 15 and your trailing step at 5.
10450.6 + 15 + 5 = 10470.6, the level at which your trailing stop will be activated once the market hits it.
10470.6 is above the current market level of 10468.6, so your entry is accepted.
If the market moves in your favour to pass 10470.6, your trailing stop will be activated with your new stop level at 10,455.6, maintaining the set stop distance of 15 points. Every time the market moves five points in your favour, your stop level will move to maintain that 15-point distance.
Please bear in mind that trailing stops are not guaranteed, and so can be subject to slippage. This means that they may not be executed exactly at the level you’ve specified.