Trailing Stop Order Definition – What is Trailing Stop? | CFI LB

trailing stop order

Trailing stop orders are a special type of stop-loss order that trails with price fluctuations that come with the financial markets. Instead of being set at an absolute amount, the stop-loss price is at a certain percentage. If the price moves up, the stop-loss order moves up with the price. When the price stops rising, the trailing stop remains fixed at the new level that it was dragged to, enabling a trader to lock in more gains while minimizing losses.

 

While they may be beneficial during strong trends, they may lead to early exits if the market stalls and does a quick reversal before continuing in the main direction.

 

Key takeaways:

  • A trailing stop is designed to lock in profits or limit losses as a trade moves favorably.
  • It is especially important that during volatile times, a wider trailing stop is set.
  • Trailing stops can be set as limit orders or market orders.
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