Trailing Limit
This intelligent order is similar to a Trailing Stop order. In this case the deviation is entered with a Limit Price.
A sell order is used to immediately realize a profit using a Stoploss order with a flexible Stop Price. The current value of the Stop Price for a sell order is automatically moved upwards with a pre-defined deviation from the best bid on the market until a change in the development of the price occurs from the previous highest bid, e.g. the best bid begins to fall. A buy order is activated ("Alf" order generation) once all the Stoploss order conditions are met for the last defined Stop Price value. Therefore, a Trailing Limit sell order attempts to make a sale below the local or daily maximum during changing trends.
A Trailing Limit order is the difference between Stop Price and the limit price.
For a buy order the current value of the Stop Price is automatically shifted down to the predefined deviation from the best offer on the market until a change in the price from the previous lowest offer occurs, e.g. the best offer begins to increase. A buy order is activated ("Alf" order generation) once all the Stoploss order conditions are met for the last defined Stop Price value. A buy Trailing Limit therefore waits for a drop in the price and tries to purchase above the local or daily minimum during a change in the trend.
At the same time the Stop Price moves automatically in the same direction and using the same principle as the Limit Price for the order. If the Trailing Limit is met, the buy or sell order is only completed at the price of the bid or offer falling within the selected Limit Price deviation range.
Definitions
The Stop Price is the price limit from which quotes should be considered for specific situations when a client wants to start selling or buying.
When the client wants to sell (Trailing Limit sell order), the buy quotes that are greater than or equal to the Stop Price. When the client wants to buy (Trailing Limit buy order), the sell quotes that are less than or equal to the Stop Price are considered.
The Stop Number is the number of buy quotes that are greater than or equal to the Stop Price for a sell order or the number of sell quotes for a buy order that are less than or equal to the Stop Price. The higher the number of quotes selected (Stop Number), the more likely an later activated Alf order is settled. Two quotes from different market makers with the same Limit Price (and those quotes with the same Stop Price) are considered to be two separate quotes. Quote volume is not considered, i.e. multiple quotes from a single market maker are considered to be a single quote.
- A Trailing Limit order must always have a defined Stop Price deviation (entered into the "Stop Price" field), Limit Price deviation (entered into the "Price" field) and number of quotes.
- Stop Number cannot have a value of zero or less.
- We recommend that the Stop Price deviation be at least twice the maximum SPAD spread for the given security. If the Stop Price deviation is less than twice the maximum spread in SPAD for the given security, the validation system will warn of an increased risk that the Trailing Limit order will be executed during smaller market fluctuations.
- The Stop Price cannot be less than the maximum spread in SPAD for the given security. The maximum allowed spread between quotes for individual titles are defined by the exchange commission and are published on the PSE website.
How does an order work?
Points related to the procedure for placing an order in the exchange.
- A client can place a buy or sell intelligent order - Trailing Limit, which must contain a security, number of shares of the security (in multiples of lots), deviation for Limit Price calculation, number of buy/sell quotes (Stop Number) to or from the automatically generated Stop Price, deviation for Stop Price calculation (entered in the "Stop Price" field) and term of Order Validity.
- The validation checker checks to ensure the order is allowed, and if so, it activates the order. A Trailing Limit order is rejected if the deviation from the Stop Price is lower than the maximum spread in SPAD for the given security.
- Once the order is validated and valid, the software defines the "opening" Stop Price using the deviation between the defined Stop Price and the current best bid (for a Trailing Limit sell order) or best offer (for a Trailing Limit buy order). At the same time, the "opening" Limit Price is defined on the basis of the entered Limit Price deviation and the initially calculated Stop Price. The search for changes in the best bid (for a Trailing Limit sell order) or best offer (for a Trailing Limit buy order) then starts. For a sell order, the Stop Price changes as long as the price of the best bid decreased by the Stop Price deviation remains higher than the current Stop Price value; for a buy order, the same occurs as long as the price for the best offer increased by the Stop Price deviation is lower than the current Stop Price value. As the Stop Price changes, so to does the Limit Price change in the same direction and using the same principle.
- The software then monitors the number of buy quotes that are at or above the current Stop Price to check if they drop to or below the entered number of quotes for a sell order. If this occurs, an Alf sell order is immediately placed on the market using the defined parameters (number of shares and the most recently calculated Limit Price). The order is active until the entire volume of the trade is sold, the order expires or the client cancels the order. A Trailing Limit buy order is also activated in a similar manner, where the number of sell quotes at or under the current Stop Price drops to or below the value of the Stop Number.
- Three conditions must be met concurrently in order to activate a sell order:
(a) The number of remaining buy quotes must be smaller than or equal to the Stop Number,
(b) At least two buy quotes must be on the market,
(c) There must be at least one buy quote with a price that is lower than the Stop Price. - The following conditions apply in order to activate a buy order:
(a) The number of remaining sell quotes must be smaller than or equal to the Stop Number,
(b) At least two sell quotes must be on the market,
(c) There must be at least one sell quote with a price that is higher than the Stop Price
Note 1) If a Trailing Limit order is placed before SPAD opening, the current Stop Price and Limit Price are defined immediately after SPAD opening.
Note 2) Trailing Limit provides an investor with additional protection against non-standard market situations (quickly changing prices, etc.)
Example Trailing Limit sell order
An investor wants to fix generated profits but expects during the day that the price for ČEZ stock may increase during the day. For this reason, the investor decides to place a Trailing Limit order
- Quantity sold: 1 lot / 5,000 shares
- Stop Price deviation: CZK 6
- Limit Price deviation: CZK 2
- Stop Number: 3
Bids and orders when order placed:
The placed Trailing Limit order is not visible on the market and waits until the conditions to activate the order are met. The initial Stop Price is generated at CZK 856 (862 - 6) and the system counts the number of quotes (Stop Number) with a price that is greater than or equal to the Stop Price is above 3. There are five quotes with a price higher than CZK 856. The initial Limit Price is also generated at a level of CZK 854 (856 - 2).
| Market maker | Price (CZK) | Cumulative number of shares | |
| ING | 869.30 | 45,000 | Offer |
| CS | 867.00 | 40,000 | |
| FIO | 866.80 | 35,000 | |
| HVB, PF | 865.00 | 30,000 | |
| WOOD, AFT | 864.00 | 10,000 | |
| 863.00 | Last trade | ||
| PF | 862.00 | 5,000 | Bid |
| KB | 861.00 | 10,000 | |
| HVB, ING | 860.00 | 20,000 | |
| FIO | 857.30 | 25,000 | |
| CS | 855.00 | 30,000 |
Following stock price increase:
Stock price rises to CZK 879 and the best bid is CZK 878. The sell order is not yet activated. The Stop Price moves with the increase in the price and is fixed at CZK 872. The current number of quotes at or above the Stop Price remains five. The current Limit Price is CZK 870.
| Market maker | Price (CZK) | Cumulative number of shares | |
| CS | 882.00 | 45,000 | Offer |
| ING, FIO | 881.00 | 40,000 | |
| HVB | 880.80 | 15,000 | |
| WOOD | 880.00 | 10,000 | |
| AFT | 879.00 | 5,000 | |
| 879.00 | Last trade | ||
| ING | 878.00 | 5,000 | Bid |
| CS, KB | 877.40 | 15,000 | |
| FIO | 876.30 | 20,000 | |
| AFT | 872.00 | 25,000 | |
| PF, WOOD | 871.00 | 35,000 |
Trailing Limit order activation:
If the stock price then falls, the Stop Price remains fixed at its previous high (CZK 872). The number of quotes above the Stop Price is now three (CS, KB, WOOD) meaning the Stop Number condition is met and an Alf sell order is automatically sent to the market with a Limit Price of CZK 870. This is paired with the best bid on the market - and the trade takes place at CZK 876.
| Market maker | Price (CZK) | Cumulative number of shares | |
| PF | 881.00 | 40,000 | Offer |
| ING, FIO | 880.00 | 30,000 | |
| CS | 878.80 | 15,000 | |
| WOOD | 878.00 | 10,000 | |
| ING | 877.00 | 5,000 | |
| 876.00 | Last trade | ||
| CS | 876.00 | 5,000 | Bid |
| KB | 875.40 | 10,000 | |
| WOOD | 874.00 | 20,000 | |
| AFT, FIO | 871.00 | 30,000 | |
| HVB, PF | 870.00 | 40,000 |
