Trailing Stops are a risk management tool that allow you to manage your risk without restricting your potential profit. They can help you to secure your gains as the market moves in your favour and give you added flexibility as they automatically track your profitable positions. This means you don’t have to continuously think about monitoring your position and moving your stop manually.
Once you have set your Trailing Stop you need to set the distance you want your Trailing Stop away. If the market then moves in your favour, the Trailing Stop will move in that direction at a set size of increments. Minimum distances and set size of increments may apply to some Trading Platforms.
Please note that Trailing Stops are not guaranteed so you may still be subject to slippage in volatile market conditions, so it is not possible to have both a Trailing Stop and a guaranteed stop. There are no extra charges for selecting your stop order to be trailing.
Example of a Trailing Stop
Here is an example of how one might use a Trailing Stop.
Buy 100,000 GBP/USD at 1.6050.
The level of the Trailing Stop order is set at 1.6030.
If the market moves in your favour (higher) then the Trailing Stop will move in that direction according to the set size of increments applicable to that market. If it is set to increments of 10 pips, then if your GBP/USD position moves higher by 10 pips (to 1.6060), your Trailing Stop will move up 10 pips to 1.6040.
If GBP/USD continues to rally without retracing, then for every 10 pips it rises, your Trailing Stop will carry on stepping higher in increments of 10 pips.
If at some point GBP/USD does turn lower, then your Trailing Stop will remain in place at the last level it has stepped to, acting as a normal stop order.