What is trailing stop?

A stop instruction whose trigger price follows the market by a fixed distance or percentage, moving in your favor and staying put when the market reverses.

It exists because a plain stop has to be moved by hand. If you set a sell stop below your entry and the price doubles, the stop is still sitting where you left it, protecting nothing. A trailing stop does that repositioning automatically, so the protected level rises with the market and never falls back.

The common error is treating the trail distance as a guaranteed maximum loss from the high. It is a trigger, not a fill price, and in a fast move the two can be far apart.

How it works

You specify a distance rather than a level, either as an absolute amount or as a percentage of the current price. The exchange tracks the best price the market has reached since you placed the order, usually called the high water mark for a sell, and keeps the trigger that distance below it.

When the market makes a new high, the trigger moves up. When the market falls, the trigger does not move down. Once the market trades through the trigger, the order converts to a market order, or to a limit order at an offset if the venue offers a trailing stop limit, and the resulting order fills against whatever is on the book.

That conversion step is where the outcome is decided. A market order fills at available prices and is certain to execute but not at a known price. A limit order fills at your price or better and may not execute at all, which in a fast decline is the worse failure.

Implementation differs by venue. Whether the trail follows the last trade, the mark price, or the bid is set in each exchange's own order type documentation.

Example

Illustrative. You buy at $100 and set a 10 percent trailing sell stop. The trigger starts at $90.

The market rises to $130. The high water mark is $130 and the trigger has climbed to $117. The market then falls to $124, and the trigger stays at $117, because trailing stops do not retreat. A further fall to $117 triggers the order, it becomes a market sell, and the top of the book at that moment fills you at $116.60.

Result: you sold roughly 10 percent below the peak and 16.6 percent above your entry, having placed one order and never touched it. Had the fall been a gap rather than a drift, the fill could have landed well below $117.

Why it matters when you buy

A trailing stop is an exit tool, so it matters at the point where you decide which venue to hold on. Order type support varies widely, and the venue that is cheapest to buy on may not offer the order you want to leave behind. The exchange directory covers platform features, and the guide on limit versus market orders explains the fill mechanics underneath.

Related terms

• stop order: the plain version with a fixed trigger
• stop limit order: a stop that becomes a limit order
• take profit order: the opposite exit instruction
• slippage: the gap between trigger and fill
• volatility: what determines how often you get stopped out

Questions

What trail distance should I set?

There is no correct number, and RampAtlas does not recommend one. A trail tighter than the asset's normal daily range will trigger on ordinary noise, and a wider one gives back more before it acts.

Does a trailing stop work while I am offline?

Yes on a centralized exchange, because the order rests with the venue and its engine tracks the price. It does not survive the exchange halting the market or going down, and it does not exist at all on most decentralized venues.

Is the trigger visible to other traders?

No. Stop orders are held by the exchange and are not shown on the public book until they trigger.