A trailing stop order is an order type that enables a trader to maximize and protect gains made on an open position. It's an advanced form of stop order that automatically deploys an order at a predefined point above or below the current price.
Trailing stop orders are beneficial when a trade is going in the trader’s direction but they are either unable to monitor their position closely or are unsure how far the price will run.
There're two types of trailing stop variance: percentage and constant. You can also set an activation price which will determine when the trailing stop will be in effect to track the market price.
Trailing stop order to sell (percentage) example
Let's say the current price is $100, and you set a trailing stop order to sell your assets at 10% below the market price.
If the price drops 10% from $100 to $90, your trailing stop order will be triggered and converted into a market order to sell.
If the price rises to $150 and then the price drops 7% to $140, your trailing stop sell order will not be triggered. Because the trailing stop order will only be triggered at $135 (10% below the market price).
If the price rises to $200 and then the price drops 10% to $180, your trailing stop sell order will be triggered and converted into a market order to sell at $180.
Trailing stop order to sell (constant) example
Let's say the current price is $100, and you set a trailing stop order to sell your assets at $30 below the market price.
If the price drops $30 from your entry point from $100 to $70, your trailing stop order will be triggered and converted into a market order to sell.
If the price rises to $150 and then the price drops $20 to $130, your trailing stop sell order will not be triggered. Because the trailing stop order will only be triggered at $120 ($30 below the market price).
If the price rises to $200 and then the price drops $30 to $170, your trailing stop sell order will be triggered and converted into a market order to sell.
Important to know
Your positions and margin will not be frozen until the trailing stop order is triggered. Please make sure you have enough positions or margin available.
A trailing stop order might not be triggered successfully because of price restrictions, position restrictions, insufficient margin, being in a non-trading status, and system errors. Once successfully triggered, the subsequent market orders might not execute, just like a regular market order. You can find the unfilled market orders under Open Order.
