Trailing Stop definition

Logic allows traders to designate a stop order, on either an already open trade or on an entry order, as "Trailing".

If this option is chosen then the stop order(s) attached to an open trade (including executed entry orders) will trail the market price by trader-selected, pre-determined minimum increments. Trailing will only occur when the market price moves in favor of the trade to which the order is attached.

Traders can chose to have the stop trail the market by a minimum of ten pips up to a maximum of nine hundred and ninety-nine, either by selecting from the default drop-down menu or enter their own chosen value.

For example

If ten pips is selected as the "Market Price Move" amount then every time that the market price moves in favor of the open trade, by ten pips or more, the attached stop(s) will be moved by the equivalent value in the same direction. This will occur automatically and will continue to lock in profits or reduce losses without trader intervention or monitoring. Should the market suddenly reverse direction, then the last established stop(s) will hold and will not trail the market when the market price is moving against the trader's order. Trader Risk Tolerance

Example: A

trader places a trade and attaches a stop 20 pips away. That trader is therefore prepared to risk a loss of 20 pips on the trade should the market move against them. If a trader selects "Trailing Stop" then the original risk parameter will be reflected each time the stop is trailed. This means that each time a stop rate is adjusted it will always be set 20 pips away from the market rate at the time it is adjusted or trailed.

Basic Example using a selected "Market Price Move" of ten pips. Step one: Trader places market order to sell EUR/USD at 1.2050. (Market price 1.2050/1.2053)

  Step two: Trader attaches a stop on this order to buy EUR/USD at 1.2080
  (30 pips loss parameter from original trade rate).

  Step three: Trader designates this stop as "Trailing" and chooses a 10-pip
  minimum trail-by amount.

  Step four: Trader submits stop order.
  (Market price at time of submission 1.2048/1.2051)

  Step five: Reference rate for Trailing Stop will be the ask price, 1.2051.
  (1.2051-10 pips)

  Once the market price moves in the trader's favor by ten pips, or more,
  1.2051 to 1.2041, then the attached stop will be adjusted by ten pips,
  1.2080 to 1.2070.

What happens if market prices change by MORE than trader-selected "Market Price Move" amount? Should the market move by MORE than the selected “Market Price Move” (in this case ten pips) then the trailing stop would be adjusted accordingly. To use the previous example, once the market moves ten pips from the reference rate then the stop will be trailed, therefore at 1.2041, or better, the stop will be moved.

  Market Reference Rate for Trailing Stop is 1.2051, first stop price move will occur at
  1.2041 if a 10 pip "trail-by" amount is chosen.

  Market moves 1.2051 to 1.2047 – Stop does not change.

  Market moves 1.2047 to 1.2042 – Stop does not change.

  Market moves 1.2042 to 1.2039 (2 pips beyond target rate of 1.2041) – Stop will be
  reset to 1.2068 (1.2080 – 12 pip "market price move" in favor of trade = 1.2068)

  New Reference Rate for next stop adjustment will be 1.2029 (10 pips from current
  market price of 1.2039)

Related words

Trailing StopTransaction RiskTranslation ExposureTwo Way QuoteTurnover RatioTotal return