A trigger order is an advanced trading instruction that allows traders to set a specific target price which must be reached before executing a limit order or market order. This mechanism provides greater control over trade entry and exit points, particularly in volatile markets.
How Trigger Orders Work
Trigger orders combine two components:
- Trigger Price: The predefined threshold that activates the order.
- Execution Order: The subsequent action (limit/market order) once triggered.
For perpetual swaps and futures contracts, traders can select from three trigger types:
| Trigger Type | Definition | Use Case |
|--------------------|---------------------------------------------------------------------------|-----------------------------------|
| Last Price | The most recent transaction price. | Short-term price movements. |
| Mark Price | A reference price derived from the weighted spot index across exchanges. | Prevents market manipulation. |
| Index Price | The average price from major spot exchanges. | Neutral benchmark for stability. |
Example Scenario
If the current market price is $100:
- A trigger order set at $110 activates when the price hits this level.
- Upon triggering, it executes a linked limit order (e.g., buy at $112) or market order.
Key Benefits of Trigger Orders
- Precision: Automates trades at optimal prices without constant monitoring.
- Risk Management: Limits emotional decisions by predefining entry/exit points.
- Flexibility: Adapts to different market conditions (bullish/bearish).
FAQs
Q: Can trigger orders guarantee execution?
A: No. While the trigger ensures the order activates at the specified price, execution depends on market liquidity and order type (limit orders may not fill if the price moves away).
Q: Are trigger orders free to use?
A: Most exchanges charge standard fees for executed orders. Check your platform’s fee structure.
Q: How do I set a stop-loss with a trigger order?
A: Set the trigger price below the current market price (for long positions) and link it to a market order to minimize losses.
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Risks and Considerations
- Slippage: Rapid price changes may cause orders to fill at worse rates.
- Platform Differences: Trigger logic varies by exchange; test in a demo account first.
This content is for informational purposes only and does not constitute financial advice. Consult a professional before trading.
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