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How do I simulate a trailing limit order, since many brokerages don't offer this? Details:

  • XYZ last traded at 10 and I want to buy it at 9 or lower.

  • However, if XYZ rockets to 12, I'm now willing to pay up to 10.80.

  • In other words, I'm willing to pay 90% of the highest value XYZ has reached since I placed my order. This is a "trailing limit".

  • Many brokers offer "trailing stops", but few offer "trailing limits".

  • General idea: I don't want to miss out on XYZ's increase, but I also know stocks usually don't go straight up or down. In particular, I believe that if a stock jumps up, it usually comes back down slightly due to profit-taking, and I obviously don't want to pay the peak price.

Is there any way to simulate this kind of order for brokers who don't offer it? I'm actually trading FOREX, but the concept should be instrument-independent.

  • Where are you trading forex? Have you looked into Interactive Brokers? They have a Trailing Limit if Touched order type. – fideli Jan 26 '11 at 18:43
  • I'm trading w/ forex.com. They're giving me a lot of bonuses/special rates, so I'd like to avoid switching brokers. – barrycarter Jan 26 '11 at 19:12
  • Are you using an automated system to perform the trades? – blueberryfields Jan 29 '11 at 0:38
  • Unfortunately, no (no metatrader or anything like that). I just want to combine limit and stop orders to create a trailing limit order, assuming that's possible. It might not be. – barrycarter Jan 30 '11 at 4:03
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You cannot synthesize a Trailing Limit order from Limit and Trailing Stop orders, without using an automated system to place the orders at the correct time.

To flesh out the answer: a limit order specifies a price at which to transact (unless there is better available), but allows no worse. It is a single fixed price however, in a standard limit order.

A trailing stop order is most often used to allow an upside while limiting a downside. If I hold some security, and never want to lose more than 5% of its value, I can use this order type. As the security goes up in price, then back down, when it hits 5% down from the peak, the order will automatically trigger. This percentage is so I don't have to specify an exact price, but can take advantage of the full upside.

In order to do what you are trying to do, which is to enter into the trade instead of trying to unwind the trade, you will need support from the broker with a Trailing Limit order, unless you are a very active trader and then effectively do it manually by staying at your screen all day (or using meta-trading tools like mentioned in the comments).

Good Luck

  • Thanks. I'm wondering if some odd combination of long and short orders w/ trailing stops and regular limits might do the trick? – barrycarter Feb 2 '11 at 23:11
  • Like all synthetic order types, you can likely get somewhat close, but the effort here will be large, and you will actually end up trading quite a bit of volume. You could ladder buy orders at every penny to some depth and pair them with trailing stop orders. BUT as the market goes up, you will end up holding quit a bit - instead of your single purchase amount that a trailing limit would give you. – sdg Feb 3 '11 at 13:29

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