DEFINITION of trailing stop orders

Trailing stop orders is a technique is designed to allow an investor to specify a limit on the maximum possible loss, without setting a limit on the maximum possible gain.


This is a special type of trade order where the stop-loss price is not set at a single, absolute money amount. But instead, it is set at a certain percentage. Or at a certain money amount or amount of points, below the market price.

When the price goes up, it drags the trailing stop along with it. Vice versa, when the price stops going up, the stop-loss price remains at the level it was dragged to.


Using a trailing stop order is one way for a trader to gain better control of their order. Understanding what order types are, why, and when traders use them. And what factors impact their execution can help you match an order type to your specific trade objectives.

A trailing stop is a way to automatically be protected from an investment’s downside while locking in the upside.
They sometimes referred to as trailing stop-loss.

A trailing stop order (sometimes called a trailing stop limit order) is a type of stop-loss that automatically follows your position if it earns you profit.

This can make them a useful addition to your risk management strategy. Of course, if your position moves favorably. But if reverses, a trailing stop can lock in your profits before closing the trade.

In a long position, a trailing stop will be placed below the current market price of the asset being traded. In a short position, it will be above the current market price.

Trailing stop orders may have increased risks due to their reliance on trigger pricing, which may be compounded in periods of market volatility, as well as market data and other internal and external system factors. Trailing stop orders are held on a separate, internal order file, placed on a “not held” basis, and only monitored between 9:30 a.m. and 4:00 p.m. Eastern.

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