Trailing Stop-on-Quote Orders
Trailing stop-on-quote orders allow you to set a stop order at a certain percentage or dollar decimal spread away from the market price. As the market price changes, your stop price changes accordingly. In effect, your stop price 'trails', or follows, the Last price and triggers off the NBBO. For a trailing sell stop-on-quote, the stop price (trigger price) adjusts upward as the Last or Print price increases and does not move when the price decreases. Buy stop-on-quote orders work the opposite way and adjust downward as the Last price decreases.
Trailing Stop-on-Quote Scenario
You currently own 100 shares of XYZ. XYZ is trading at $60, and you are willing to sell the next time the stock price decreases by $5. You set the trailing stop amount at $55. XYZ increases for a while, and then falls to $52, but your order still hasn't triggered. What happened?
When you enter a trailing stop-on-quote amount, you are entering the amount of spread you want between the current market price and the trigger price, not the trigger price itself. If you want to set a particular trigger price, then a regular stop order is a better choice than a trailing stop-on-quote order.
In this scenario, if you wanted to sell the next time the stock decreased by $5, you would set the trailing stop amount at $5, not $55. At $60, your trail would be at $55, and if XYZ increases to $63, your trail would move to $58. Then, if XYZ falls to $52, as it does in the scenario, your stop price would still be up at $58 (remember, the trigger price only trails the stock price when it moves in your favor), and the order would trigger once XYZ meets or surpasses (falls below) $58.
Trailing stop-on-quote orders can also be placed using a percentage rather than a dollar amount. So, instead of setting a trailing stop amount of $5 behind the current market price, you could set it at 5% instead.