Trailing Stop Order

A trailing stop is a stop-loss that follows the price. Instead of choosing a fixed stop price, you choose a distance, either in dollars or as a percentage. As the stock rises, the stop price rises with it. If the stock falls, the stop stays where it is. When the price drops to the stop level, the order is triggered.

The idea is to protect gains while still giving a rising stock room to move. Investors use it to avoid having to adjust a stop-loss by hand every time a price climbs.

Like a standard stop order, a trailing stop usually becomes a market order when triggered, so the sale price can be lower than the stop in a fast decline. Setting the distance too tight can cause normal daily swings to trigger a sale, while setting it too wide gives back more of the gain.

Example: you buy a stock at $100 and set a 10% trailing stop. The stop starts at $90. If the stock rises to $130, the stop moves up to $117. If the stock then falls to $117, the order is triggered and the shares are sold near that price.