Trailing Stop
Order Types & Execution
A trailing stop is a stop-loss that automatically follows the price by a set distance as a trade moves in your favor, locking in gains while limiting downside.
What is a trailing stop?
A trailing stop is a dynamic version of a stop-loss that moves with the market as a trade becomes profitable, rather than staying fixed at one price. You set a distance — in pips, points, or a percentage — and the stop automatically adjusts to stay that distance behind the current price, but only ever in the direction that protects profit; it never moves against you.
How it works
On a long (buy) position, a trailing stop sits below the current price and rises as price rises, but stays put if price falls or pauses. On a short (sell) position, it sits above the current price and falls as price falls. Because it is built on the same underlying mechanism as a stop order, once price retraces enough to touch the trailing level, it triggers and closes the position at the best available price.
Worked example
Suppose a trader buys EUR/USD at 1.0800 and sets a 30-pip trailing stop. Initially the stop sits at 1.0770. If price rises to 1.0850, the stop trails up to 1.0820 — locking in at least 20 pips of gain even if the market reverses from here. If price then falls back to 1.0820, the position closes automatically at that point, protecting the gain already made. If, instead, price had kept rising to 1.0900, the stop would have kept trailing up to 1.0870.
Trailing stop vs. take-profit
A take-profit order closes a trade at one fixed target price. A trailing stop, by contrast, has no fixed ceiling — it lets a winning trade run as far as the market allows while still protecting against a full reversal, which can suit trending markets where the ultimate extent of the move is hard to predict in advance.
Why it matters
Trailing stops automate a key piece of trade management: protecting unrealized profit without needing to constantly adjust a manual stop-loss. They are a popular tool in risk management for letting winners run, though traders should be aware that a trailing distance set too tight can close a trade prematurely on normal short-term price noise.
Trading carries a high level of risk and may not be suitable for all investors.