What is a Trailing Stop?

Trailing Stop Definition. A Trailing Stop, or trailing stop order or trailing stop-loss order, is a stop-loss level set above or below the current price that the forex trader adjusts as the price fluctuates. If your forex broker offers an automatically changing trailing stop, you may be able to enter a price or percentage amount. Check with your broker first to be sure that you are entering the data correctly. For a long position in a currency, a trailing stop would be entered below the current price and would rise as the price advances. If the price declines and reaches the trailing stop, then a stop-loss order would be triggered and the position closed. As long as the price remains above the trailing stop, the position is not liquidated. Forex traders commonly use the Parabolic SAR indicator or moving averages to set the level of trailing stops. A Trailing Stop can be placed as a trailing stop limit order, or a trailing stop market order. This tool is extremely useful in locking in profits and letting your winners run, while protecting your downside along the ride. A prudent forex trader should understand all order options supported by his broker and the advantages and disadvantages of each option.

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Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.