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What is a trailing stop?
A trailing stop is a stop order whose trigger price follows the market at a set distance, a percentage or an amount. As the price moves in your favour the stop moves with it; when the price turns against you, the stop stays put and triggers if reached.
What it means for you
A trailing stop can lock in part of a gain without you watching the screen, but the distance you choose matters: too tight and ordinary swings sell you out early, too wide and you give back much of the gain. Once triggered it usually becomes a market order, so the fill can land below the trigger.
How it works
A trailing stop can be a stop or a stop-limit order. In the SEC's example, shares bought at 20 rise to 22, and a sell trailing stop is set 1 below the market. The price peaks at 24, so the stop ratchets up to 23 and stays there as the price falls; the shares are sold when the price reaches 23, though the execution price may deviate from 23. Venues differ on whether last-sale prices or quotes trigger it, and short-term fluctuations can activate it.
An example
Say you buy a coin at $100 and set a trailing stop 10 percent below the market. The price climbs to $150, pulling the stop up to $135. When the price later falls, the stop stays at $135 and triggers there, selling at about $135 or a little below.
Sources: SEC Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders, SEC Investor Bulletin: Understanding Order Types · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.