What is an Order Trailing Stop?

A trailing stop order is an advanced trading tool designed to help traders maximize profits while protecting their capital from unwanted losses. Unlike a traditional stop loss that remains fixed, a trailing stop automatically adjusts to market movements. It works by setting a stop point at a specified distance above or below the current market price. As the price moves favorably, the stop level "trails" the price. When the price reverses and reaches the stop level, the order is triggered and converted into a market order. Trailing stops are especially useful when traders cannot constantly watch their positions or want to allow profits to grow without risking them prematurely. This tool forms a key component of risk management in contemporary trading strategies.