Trailiong stop loss

Hi guys can someone please explain how a trailing stop loss works please. Many thanks

Welcome to the Community :pray:

You can check out my response below on how this order works :point_down:

The title of the post you are linking to says “for Invest/ISA” but isn’t this just for cfd positions. It would be a great feature to provide trailing stop loss orders for invest and isa accounts

That’s correct. The quote is from a discussion about Invest & ISA accounts, but this order type is only available for CFD accounts, and the explanation covers how the order works in leveraged accounts.

Hi Cyber and welcome to the forums.

Unfortunately trailing stop losses are only available in a cfd account. It would be great if they were provided in invest and ISA accounts. That aside, you asked for an explanation of how they work.

So normal limit orders work by you setting a limit price and if the price reaches the limit price the order gets converted to a market order. Thus if your limit price is 100 and the price gets to 100 or more then order is converted to a market order. That means it could execute at any price the order doesn’t guarantee the execution price so if the price had gapped up it could execute at 105 but it is also technically possible that it gets executed at less than 100 (possible but unlikely).

A stop loss order is similar you set a stop loss price and if the share price gets to your order price or less the order gets converted to a market order. So if you set a stop loss at 80 and the price gets to 80 or less the order is converted to a market order and executes. Again there is no guarantee so it could get executed at 70 or technically even above 80 (unlikely but possible).

Limit orders are often used as “take profit” orders - eg you buy at 80 and set a limit order to sell at 100. Stop loss orders are generally considered as orders for risk management (significant debate whether they just crystalise a loss and whether they are a good or bad idea).

So trailing stop loss orders. These are stop loss orders but aimed more at taking profit. Perhaps easiest to explain with an example. Say you buy at 80 the price gets to 100 and you create a trailing stop loss order. You set a distance (distance from the current price), eg 5. Thus this is the equivalent of a stop loss order at “current price - distance” so 100 - 5 => 95. If the price immediately goes down and gets to 95 the order gets converted to a market order to sell - just like a stop loss order. HOWEVER, if the price continues to rise the order will be automatically adjusted so if the price goes to 102 the order is update so it becomes a stop loss order at 102 - 5 => 97 and if the price goes to 106 it will be adjusted to 106 - 5 = 101. So you set how much you want to sell (quantity) and distance and it creates a stop loss order where the stop loss price will follow the current price up (distance below the current price). The stop loss price is never revised down so gets adjusted up but not down so will trigger by any dip equal to or great than the distance set in the order.

Hope that makes sense. Have a look at investopedia or elsewhere I am sure that there are far better explanations on the net than my attempt at an explanation

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Trailing Stop loss would be incredibly useful for Invest Users, if this could be considered as a feature

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