A trailing stop loss order is an order type where the stop loss is also revised towards the target at the same tick rate when the market price of stock/contract moves in your desired direction. This order type helps minimize the downside by cutting the loss that can be incurred.
It also provides an option to put book profit level at the time of order placement.
How does it work
For example: If one have an existing buy position/holding with market price of Rs 100 per share and wishes to place a stop loss sell order with trail option for Rs 97 per share, with a stop loss trigger price of Rs 98.
Rising price : When the market price of the stock moves to Rs 101, the stop loss also gets revised to Rs 98 and the stop loss trigger price becomes Rs 99. This stop loss price will continue to move up when the LTP of the stock keeps on increasing.
Falling Price : When the market price of the stock moves to Rs 99, the stop loss does not get affected and stays at Rs 97. This stop loss price would not change until the market price does not move over market price of Rs 100.
Stop Loss Trigger : When the market price for the stock reaches Rs 98, which is the trigger price for the stop loss order, the stop loss order gets executed at the market price between Rs 98 and Rs 97.
Stop Loss Trigger after a price rise : When the market price of the stock moves to Rs 105, the stop loss also gets revised to Rs 102 and the stop loss trigger price becomes Rs 103. Now if the price fall to Rs.103, which is the trigger price for the stop loss order, the stop loss order gets executed at the market price between Rs 103 and Rs 102.
Book Profit option is also available for TSL orders, when the upper range for the order is also defined. In the above example, if you want to book a profit at the market value of Rs 110 per share, then you can place the TSL order with a book profit sell price of Rs 110. As soon as the market price of the share reaches Rs 110, the book profit order is triggered.
Trailing stop-loss order allows you to place stop-loss which gets adjusted automatically as per the stock’s movement in a favourable direction.
Trailing stop loss order can be a fresh or square off order in case of buy, trigger price and limit price will be above current LTP. If the LTP of securities comes down then trigger price will not be trailed and in case if the LTP of the securities goes up then the trigger price will be trailed.
TSL order type with book profit option is available for Cash, Margin, Intraday, E-margin, Cover (only bracket).
No, it is only an optional feature.