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What is a trailing stop? How can I put on a trailing stop?

Posted By Robert On Thursday, February 12th, 2015 With 0 Comments

A trailing stop is a stop loss which trails the level of a market going in your favour. This feature enables a client to limit their risk on an investment while locking in any potential profit. The client enters a stop loss level and a trailing level. When the market price moves in an increment equal to or greater than the size of the specified trailing level, the stop loss will be adjusted by the specified trailing level. If the market goes against you, your position will be closed when the level reaches the most recently adjusted stop loss level.

How does a trailing stop loss work?

A Trailing Stop Loss is a flexible stop loss level that is created by setting a Trailing Stop Loss Distance. This follows the broker’s price by the specified Trailing Stop Loss Distance (plus spread) if it moves in a favourable direction; stays unchanged if the broker’s price moves in an unfavourable direction; and will be closed if the broker’s price equals or exceeds the Trailing Stop Loss. A Trailing Stop loss can be manually placed on an open position and is an optional addition to a Stop Loss.

For long orders, once the trade is executed the trailing stop will track the bid (sell) price. For short orders, once the trade is executed the trailing stop will track the offer price. These must be used with caution as if the trailing stop loss level is set close to the current market price, a small fluctuation in a typical market due to the normal ebb and flow of daily prices, is likely to trigger the stop loss.

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