Fidelity Conditional Stop Loss

Combining a Trailing Stop Loss and a Standard Stop Loss at Fidelity

Investing in the stock market involves balancing potential gains with the risk of losses. Two powerful tools to manage this risk are the trailing stop loss and the standard stop loss. At Fidelity, you can combine these strategies using a One-Cancels-the-Other (OCO) conditional order, allowing you to protect profits while limiting downside risk. In this comprehensive guide, we’ll explore how these orders work, how to set them up at Fidelity, and key considerations to optimize your trading strategy.

What Are Trailing Stop Loss and Standard Stop Loss Orders?

Before diving into the setup, let’s clarify what these order types are and how they function:

• Trailing Stop Loss: A dynamic order that adjusts with the stock price to lock in profits. You set a trailing amount (e.g., $3 or 5%) below the market price. As the stock price rises, the stop price rises accordingly, maintaining the set distance. If the stock price falls to the stop price, the order triggers, selling your shares. This is ideal for protecting gains in a rising market.
• Standard Stop Loss: A fixed-price order that triggers a sale if the stock drops to or below a specified price. For example, setting a stop loss at $45 ensures your shares are sold if the price hits $45, limiting your losses. This is useful for capping downside risk in volatile markets.

By combining these orders, you can create a flexible strategy that adjusts to upward price movements while maintaining a hard floor to limit losses.

Why Combine These Orders?

Using a trailing stop loss alone allows you to ride a stock’s upward trend, but it may not protect you from sudden, sharp declines below a critical price point. Conversely, a standard stop loss provides a fixed safety net but doesn’t adjust to capture gains if the stock rises significantly. Combining them through an OCO order offers the best of both worlds:

• Profit Protection: The trailing stop loss locks in gains as the stock price increases.
• Loss Limitation: The standard stop loss ensures you exit the position if the stock falls to an unacceptable level.
• Automation: The OCO order automates the process, so you don’t need to manually adjust your orders.

How to Set Up a Trailing Stop Loss and Stop Loss at Fidelity

Fidelity doesn’t offer a single order type that combines a trailing stop loss with a fixed stop price in one order. However, you can achieve this by using a One-Cancels-the-Other (OCO) conditional order, which links two separate orders: a trailing stop loss and a standard stop loss. When one order executes, the other is automatically canceled. Here’s a step-by-step guide to setting it up:

1. Log In to Your Fidelity Account: Access your account via the Fidelity website, mobile app, or Active Trader Pro platform.
2. Navigate to the Trade Screen: Select the account holding the stock, enter the stock ticker, specify the quantity, and choose “Sell” as the action.
3. Select Conditional Order:
   • Go to the “Trade” section and choose “Conditional” under order types.
   • Select One-Cancels-the-Other (OCO) from the conditional order options.
4. Set the Trailing Stop Loss:
   • Choose “Trailing Stop Loss” as the first order type.
   • Enter the trailing amount (e.g., $3 or 5%) and select whether it’s based on the last price, bid, or ask price.
   • Specify the time-in-force: “Day” (expires at the end of the trading day) or “Good ‘til Canceled” (lasts up to 180 days).
5. Set the Standard Stop Loss:
   • Choose “Stop Loss” as the second order type.
   • Enter the fixed stop price (e.g., $45).
   • Specify the time-in-force.
6. Preview and Submit:
   • Review the order details to confirm both the trailing stop loss and stop loss are set correctly.
   • Submit the order. Fidelity will monitor both conditions, executing one order and canceling the other when triggered.

Example Scenario

Suppose you own 100 shares of XYZ stock, currently trading at $50. You want to protect profits if the stock rises and limit losses if it falls sharply. You set up an OCO order as follows:

• Trailing Stop Loss: $3 trail. If XYZ rises to $60, the stop price adjusts to $57.
• Standard Stop Loss: $45. If XYZ drops to $45, the shares are sold.

Outcomes:

• If XYZ rises to $60 and then drops to $57, the trailing stop loss triggers, selling your shares at approximately $57, and the $45 stop loss is canceled.
• If XYZ drops directly to $45 without rising, the standard stop loss triggers, selling your shares at approximately $45, and the trailing stop loss is canceled.

Key Considerations and Risks

While combining trailing stop loss and standard stop loss orders is a powerful strategy, there are important factors to keep in mind:

• Execution Risk: Both trailing stop and stop loss orders convert to market orders (or limit orders for trailing stop limit) when triggered. In volatile markets, the execution price may differ from the stop price due to price gaps or rapid swings.
• Trigger Conditions: Fidelity triggers stop orders based on a round lot transaction (100 shares or more) or a print in the security. Trailing stop orders can be set to trigger based on the last price (default), bid, or ask.
• Platform Limitations: Some users report that Fidelity’s mobile app may not display all fields (e.g., limit price for trailing stop limit orders) accurately. For complex orders like OCO, consider using the Fidelity website or Active Trader Pro for better control.
• Market Hours: Stop orders are typically active during regular market hours (9:30 a.m. to 4:00 p.m. ET). Extended-hours trading may affect order execution.
• Manual Alternative: If you prefer not to use an OCO order, you can manually monitor and adjust a trailing stop loss to ensure it doesn’t fall below a certain threshold. However, this requires active management and isn’t automated.

Pro Tip: If you’re new to conditional orders or encounter issues setting up an OCO order, contact Fidelity’s Active Trader Services at 800-343-3548 (say “Active Trader Services”) from 8:00 a.m. to 5:00 p.m. ET, Monday to Friday. Their team can guide you through the process.

Exploring Alternatives

While Fidelity’s OCO order effectively combines a trailing stop loss and a standard stop loss, some brokers may offer alternative order types. For example, platforms like Interactive Brokers or thinkorswim by TD Ameritrade might allow a trailing stop with a “floor” price in a single order. However, Fidelity’s OCO order is a robust solution that achieves the same goal without needing to switch brokers.

For more information on Fidelity’s order types and conditional orders, visit:

• Fidelity Trading FAQs: Order Types
• Fidelity Conditional Orders

Conclusion

Combining a trailing stop loss with a standard stop loss at Fidelity using an OCO order is a smart way to protect your investments. The trailing stop loss captures gains as the stock price rises, while the standard stop loss acts as a safety net against significant declines. By automating this strategy, you can trade with confidence, knowing your portfolio is protected. Always consider market conditions and consult with a financial advisor to ensure this strategy aligns with your goals.

Ready to set up your OCO order? Log in to your Fidelity account and start exploring conditional orders today!

Disclaimer: This blog post is for informational purposes only and does not constitute financial advice. Investing involves risks, and you should consult a qualified financial advisor before making investment decisions. Always verify order details and market conditions before placing trades.