Trailing stop order

A trailing stop order is a stop order whose trigger price automatically moves along with the stock's price, rather than staying fixed at a level set once and never adjusted. The investor sets the trailing amount either as a fixed dollar figure or as a percentage below the current price for a long position, and as the stock rises, the stop price rises along with it, always maintaining that same distance behind the highest price reached.

The key feature is that the trailing stop only moves in the favorable direction and never moves back the other way. If a stock rises from $50 to $70 with a ten percent trailing stop, the stop price climbs from $45 up to $63 along the way, locking in progressively more of the gain as the stock advances. If the stock then pulls back from $70, the stop price stays fixed at $63 rather than trailing back down, so a decline of more than ten percent from the peak triggers the sale.

This lets an investor participate in further upside if the stock keeps climbing, while automatically protecting an increasing amount of profit as the price rises, without needing to manually reset a fixed stop-loss order every time the stock reaches a new high. Like a plain stop order, a trailing stop becomes a market order once triggered, so it does not guarantee a specific execution price, only that the sale will activate once the price falls the specified distance from its peak.