Trailing stop loss
Family II · Orders
Not to be confused with stop limit order, stop order, buy stop order.
Trailing stop loss is a type of stop order in which the stop price is not fixed but recalculated as the market moves favourably. The stop trails the best price reached since the order was placed, keeping a constant offset, and it stays put once the market reverses. When price touches the trailing stop, the order triggers, usually as a market order.
How the trailing stop moves
The offset can be set as an absolute amount, such as 2.00, or as a percentage of the current price. The stop is placed at the offset below the highest price seen for a long position, or above the lowest price seen for a short position. It never moves against the position: it rises with new highs for a long, or falls with new lows for a short, and remains at its most recent level when the market retraces.
Because the stop is only adjusted in one direction, the distance from the current market price can shrink as the trade progresses, but the initial offset is the maximum risk per unit if the stop is triggered before the market has moved in the trader's favour.
Worked example
Practical notes
The offset should be wide enough to absorb normal market noise; a stop that is too tight can be triggered by routine fluctuations before the trend develops. Trailing stops are supported by many brokers but the available offset types, minimum distances and whether the order is held on the broker's server or the trading platform vary by venue and account type. Some markets restrict stop orders to certain order types or sessions, and a trailing stop may not be accepted in all instruments.
Often confused with
- stop limit order
- A stop-limit order triggers a limit order at a specified price, so the eventual fill price is capped or floored, whereas a trailing stop loss triggers a market order and its stop price moves with the market; the visible sign is that a stop-limit order shows a fixed limit price alongside the stop, while a trailing stop shows only an offset.
- stop order
- A stop order has a fixed stop price that does not change after placement, while a trailing stop loss recalculates its stop price as the market moves in the favourable direction; the visible sign is that a stop order's trigger price remains constant on the order ticket, whereas a trailing stop's trigger price updates with each new high or low.
- buy stop order
- A buy stop order is placed above the current market price and is used to enter a long position or cover a short, while a trailing stop loss is typically placed below the market for a long position and moves upward to protect gains; the visible sign is the side of the market: a buy stop sits above the price, a trailing stop for a long sits below it.