Trailing Stop Order definition

A trailing stop order is a dynamic exit strategy that allows investors to set a stop-loss level that adjusts automatically with the movement of a security’s price. Unlike a fixed stop-loss order, which stays static, a trailing stop “trails” the market price by a specific percentage or dollar amount. This type of order helps lock in profits as the price rises while providing downside protection if the asset reverses direction.

For example, if an investor buys a stock at $100 and sets a trailing stop at 10%, the stop order will initially trigger at $90. However, if the stock rises to $120, the trailing stop moves up to $108. If the stock then falls to $108, the stop order is executed, preserving most of the gains. This type of order is particularly useful in trending markets where investors want to let profits run but limit potential losses.

Trailing stop orders are available for both long and short positions and can be used with equities, options, and futures. They are especially valuable in volatile markets where manual adjustments may lag price action. While they offer convenience and automation, it’s important to understand that once triggered, the order becomes a market order, which may result in execution at a price different from the stop level, especially during rapid market swings.

IBKR platforms support a variety of Trailing Order Types.

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Trailing Stop Order

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