A trailing order is a type of conditional order that adjusts the stop loss level for a position as the market price moves in a favorable direction. It is commonly used by traders to lock in profits and limit potential losses.
There are two types of trailing orders: trailing stop orders and trailing limit orders. A trailing stop order is an order to sell a security if its price drops below a certain level, but it also includes a trailing feature that allows the stop price to move higher as the security’s price rises. This can help protect profits and limit losses by allowing the trader to capture gains as the price rises and exit the position if the price starts to fall.
A trailing limit order is similar to a trailing stop order, but it includes a limit price as well. This type of order sets a maximum or minimum price at which the trade will execute, and as the market moves in a favorable direction, the trailing feature adjusts the stop price accordingly.
Trailing orders can be a useful tool for traders who want to automate their trades and minimize the need for constant monitoring of the market. However, it’s important to note that they do not guarantee profits and can still result in losses if the market moves in an unfavorable direction. It’s also important to set the parameters of the order carefully to ensure that it is effective in achieving the trader’s goals.