TWS IBAPI Trailing Stop Orders vs Adjusted Trailing Stop Orders
The difference between a regular trailing stop order and an adjustable trailing stop order, also known as the “Adjustable Stop” order type in Interactive Brokers’ TWS API (IBAPI), lies in the way they respond to changes in the market price.
A Trailing Stop Order sets a stop price at a fixed amount below the market price with an attached “trailing” amount. As the market price rises, the stop price rises by the trailing amount, but if the stock price falls, the stop loss price doesn’t change, and a market order is submitted when the stop price is hit.
On the other hand, the Adjustable Stop Order in IBAPI is designed to assist traders in managing their exit strategy. With an adjustable stop order, you can adjust the stop trigger price based on the conditions of the market. This means that in addition to the trailing stop functionality, it allows you to change the stop price by a defined amount at a certain trigger price. This could be used to tighten the stop loss as the price gets closer to the target.
Now let’s illustrate this with an example:
Imagine we have an existing orderbook for a stock:
| Bid Qty | Bid | Ask | Ask Qty |
|---|---|---|---|
| 100 | $99.5 | $100.5 | 200 |
| 200 | $99 | $101 | 300 |
| 50 | $98.5 | $101.5 | 150 |
| 100 | $98 | $102 | 50 |
Let’s say we have a long position bought at 100, and we set a Trailing Stop Order with a stop value of $2 when the last trade was at $100. So the stop price is initially set to $98. If the last trade rises to $105, the stop price will trail by moving up to $103. But if the last trade then falls to 104, the stop price will remain at $103. If the last trade falls to 103 or below, it very likely that you will trade (Sell).
| Last Price | Stop Price |
| 100 | 95 |
| 103 | 98 |
| 105 | 100 |
| 103 | 100 (note stays) |
In the case of an Adjustable Stop Order, let’s say we specify an adjustment amount of $1 that takes effect when the last trade reaches $103. So, initially, the stop is set just like the trailing stop order, starting at $95. But when the last trade rises to $103, the stop price is adjusted upwards by $1 from its current position. This means, if the stop price was at $98 when the last trade reached $103, it will adjust up to $102. Then it will continue to trail up like a normal trailing stop order.
Once again, it is important to note that both these order types are designed to help manage risk and do not guarantee the exact execution price, especially in a fast-moving market where prices can change rapidly. Always consult a financial advisor or conduct your own research when trading securities.