A trade trigger is any incident that meets the requirements for triggering an electronic securities sale. It does not require direct feedback from the trader.
It is typically a market situation that causes a series of trades. For instance, a increase or decline in an index or security stock. Trade triggers will add a discipline aspect to the business process by applying guidance defined by the trader.
Understanding Trade Trigger
Trade signals help the traders optimize their plans for entry and exit. Trade triggers are often imposed using contingent orders. It requires both a primary and a secondary order in a trigger order.
The second order is activated immediately when the first order is completed. In addition, it is available for execution depending on all other circumstances.
Common triggers also use them which depends on price or external variables to position individual trades.
For example, traders will straddle the current market price by putting a one-cancel-other (OCO) order where the execution of one side will cancel the other automatically, thereby allowing the trader to enter the market, ideally with leverage in the direction.
Trade Trigger Example
Suppose a trader needs to build a protected position for the bid. He/she can place a limit order to buy 100 shares of stock. And then, sell a call option against the stock that has purchased if the trade executes.
The trader doesn’t need to think about waiting for the first order. It’s better before putting the second transaction manually which uses transaction triggers.
The dealer should be confident that all orders have been set at the right prices.
Traders may even choose to make a profit using the proceeds from a deal. For example, a trader can place a limit order to close an option position. And then, set up a trading trigger to buy a separate option contract using the proceeds.
The trader does not care about the pace of the second exchange and should concentrate instead on finding new opportunities.
