Tracking Loss Limits: How Trailing Stop Orders Work

Trailing stop orders are an advanced tool for traders to automatically protect their profits while benefiting from upward trends. Unlike traditional stop orders, trailing stop orders dynamically adjust to price movements and are only triggered when the price falls by a predefined amount—whether expressed as a percentage or an absolute value.

The concept is especially valuable for traders who cannot constantly monitor their positions or are unsure of a realistic profit target. An activation price can also be set to determine when the trailing begins.

Fixed Amount Model: Set Concrete Loss Limits

A trailing stop order in fixed mode provides clear numbers. Suppose you buy an asset at 100 USD and set a stop at 30 USD below the current market price.

Three possible scenarios:

• Rapid decline: If the price drops directly to 70 USD, the order is triggered immediately, and your position is sold at market price.
• Intermediate high without triggering: If the price rises to 150 USD and then falls to 130 USD, nothing happens—the mark of 120 USD (30 USD below the new high ) is not reached.
• New high and trigger: If the price climbs to 200 USD and then drops by 30 USD to 170 USD, trailing is activated, and a sell order is placed.

Percentage Adjustment: Flexible Loss Limitation

The percentage model reacts proportionally to price movements. Start with an entry price of 100 USD and set a trailing stop order at 10 percent below the trading price.

Possible scenarios:

• Immediate decline: A price drop to 90 USD (exactly 10% less) triggers the order and generates a market sell order.
• Partial increase: If the price rises to 150 USD and then falls by only 7% to 140 USD, the order remains inactive. It would only trigger at 135 USD (10% below 150 USD).
• Significant rise with trigger: If the price reaches 200 USD and falls by 10% to 180 USD, trailing is activated, and a sell order is generated at 180 USD.

Key Features When Using

Important to note:

Your held positions and available margin are not blocked as long as the trailing stop order is not triggered. Ensure sufficient liquidity is available to execute the market order upon trigger.

Various factors can prevent a flawless trigger: price limits, position restrictions, insufficient margin reserves, trading bans, or technical system issues. Even if the order is triggered correctly, there is still a possibility that the subsequent market order is not fully executed—similar to regular market orders. Open and unfilled orders can be viewed in your order management.

This risk management tool offers flexibility but also requires a basic understanding of your own risk appetite and the market environment.