A Trailing Stop order is a powerful and dynamic trading tool designed to protect profits and limit losses without requiring constant market monitoring. It functions as an automated stop order that follows, or 'trails,' the market price of an asset by a predetermined distance or percentage. This advanced order type automatically adjusts its trigger price as the market moves favorably, locking in gains or minimizing potential losses if the trend reverses.
How Does a Trailing Stop Order Work?
A Trailing Stop order is available for various trading products, including Spot, Margin, Perpetual, and Futures contracts. While the core mechanism remains consistent, its application differs. In Spot trading, it can be used to initiate both buy and sell orders. However, for Perpetual and Futures trading, it is exclusively a closing strategy used to exit an existing position.
Traders can configure their Trailing Stop in two primary ways:
- By Distance: The stop order triggers after a specific price retracement (e.g., $500) from the best price achieved since the order was activated.
- By Rate (Percentage): The stop order triggers after a specific percentage retracement (e.g., 5%) from the best price achieved.
Practical Examples for Spot Trading
Example 1: Trailing Buy Order by Distance
Imagine a trader wants to buy BTC/USDT. The Last Traded Price (LTP) is $50,000. They set a trailing buy order with a retracement distance of $1,000.
- If the LTP never dips below $50,000, the order triggers a market buy at $51,000.
- If the LTP falls to $48,000, the trailing stop price adjusts downward. The order would then trigger a buy at $49,000 ($48,000 + $1,000).
- If the LTP then rises to $48,500, the trigger price remains at $49,000.
- The order only executes if the price retraces by $1,000 from the lowest point ($48,000) it reached.
Example 2: Trailing Sell Order by Percentage
Imagine a trader holds ETH/USDT with an LTP of $4,000. They set a trailing sell order with a 10% retracement.
- If the LTP never exceeds $4,000, the order triggers a market sell at $3,600.
- If the LTP rises to $4,100, the trailing stop price adjusts upward. It would then trigger a sell at $3,690 [$4,100 x (1 - 10%)].
- If the LTP then falls to $3,700, the trigger price remains at $3,690.
- The order executes upon a 10% retracement from the highest price ($4,100) reached.
From these examples, we derive the trigger logic for Spot trading:
- Buy Order: Lowest price + Retracement Distance OR Lowest price x (1 + Retracement Percentage)
- Sell Order: Highest price - Retracement Distance OR Highest price x (1 - Retracement Percentage)
How to Set a Trailing Stop Order for Spot Trading
Placing a Trailing Stop order is a straightforward process on most modern trading platforms.
- Navigate to your Spot Trading interface and select the 'Trailing Stop' order type.
Configure your order details:
- Choose your retracement method (by distance or percentage) and define the value.
- Input the order quantity or total value you wish to trade.
- Set an activation price (optional). This ensures the trailing stop only becomes active once a specific price target is hit. You can typically uncheck this box if you want it active immediately.
- Click "Buy" or "Sell" to place the order.
You can view, modify, or cancel your active Trailing Stop orders from the "Current Orders" section of your trading terminal. For a deeper dive into setting up these advanced orders, you can explore more strategies on detailed trading platforms.
Practical Examples for Perpetual and Futures Trading
Example 1: Trailing Stop for a Long Position by Distance
A trader holds a long BTCUSD position entered at $30,000. They set a trailing stop with a $1,000 distance.
- If the LTP never exceeds $30,000, it acts like a normal stop loss, triggering a market sell at $29,000.
- If the LTP rises to $31,000, the trailing stop adjusts upward, now triggering at $30,000 ($31,000 - $1,000).
- If the LTP pulls back to $30,500, the trigger price stays at $30,000.
- It only triggers if the price falls $1,000 from the highest point ($31,000).
Note: For a long position, the trailing stop is a Market Sell order. The activation price, if set, must be above the entry price.
Example 2: Trailing Stop for a Short Position by Percentage
A trader holds a short BTCUSD position entered at $31,000. They set a trailing stop with a 10% retracement rate.
- If the LTP never falls below $30,000, it triggers a market buy (to close the short) at $33,000.
- If the LTP falls to $29,000, the trailing stop adjusts downward, triggering at $31,900 [$29,000 x (1 + 10%)].
- If the LTP rises to $29,500, the trigger price remains at $31,900.
- It triggers upon a 10% rally from the lowest price ($29,000) reached.
Note: For a short position, the trailing stop is a Market Buy order. The activation price, if set, must be below the entry price.
The trigger logic for Perpetual and Futures is:
- Long Position: Highest price - Retracement Distance OR Highest price x (1 - Retracement Percentage)
- Short Position: Lowest price + Retracement Distance OR Lowest price x (1 + Retracement Percentage)
Understanding Trailing Profit
A key strategic use of the activation price in Perpetual and Futures trading is to create a Trailing Profit order. This ensures the trailing stop mechanism only engages once a position is in a specified profit, allowing you to let winners run while protecting unrealized gains.
Trailing Profit Example
A trader is long BTCUSDT with an LTP at $28,000. They want a trailing stop with a $500 distance to activate only after the price hits $30,000. They set the activation price to $30,000. Once the LTP reaches $30,000, the trailing stop is activated with a trigger price of $29,500 ($30,000 - $500). This locks in at least $500 of profit from that point onward.
How to Place a Trailing Stop Order on Perpetual and Futures
The process is intuitive whether you use a mobile app or a desktop website.
On a Mobile App:
- Navigate to your open position on the Futures trading page.
- Tap on the Trailing Stop option.
- Select your retracement method (Rate or Distance) and set an Activation Price if desired.
- Tap Confirm to place the order.
To modify, tap on the order details; to cancel, tap the eraser icon and confirm.
On a Website:
- Find your open position on the Futures trading page.
- Click Add under the Trailing Stop section.
- Choose your retracement method and set an Activation Price.
- Click Confirm to place the order.
To modify, click the pencil icon; to cancel, click the eraser icon and confirm. To refine this technique further, consider to get advanced methods for risk management.
Frequently Asked Questions
What is the main advantage of a trailing stop order?
Its primary advantage is automation. It allows you to protect profits and define risk dynamically without manually adjusting your stop-loss order after every favorable price move, which is ideal for volatile markets like crypto.
Can I use a trailing stop to open a position?
Yes, but typically only in Spot and Margin trading. You can use a trailing buy order to enter a position if the price dips and then shows strength, or a trailing sell order to enter a short position on a pullback. In Futures markets, it is almost exclusively used to exit existing positions.
What happens if the market gaps past my trailing stop price?
Like all stop orders, a trailing stop becomes a market order once triggered. If the market gaps past your trigger price (e.g., due to extreme volatility), your order will be filled at the next available market price, which may be significantly different from the trigger price, resulting in slippage.
Is an activation price mandatory?
No, an activation price is optional. If you leave it blank, the trailing stop order will become active immediately upon placement and will start tracking the market price from that moment.
What’s the difference between a trailing stop and a normal stop-loss?
A normal stop-loss is static; it remains at a fixed price you set. A trailing stop is dynamic; it automatically moves in your favor as the market price moves, protecting a larger portion of your profits during a strong trend.
Does a trailing stop guarantee a specific execution price?
No. A trailing stop specifies the trigger price. Once triggered, it becomes a market order, which will be filled at the best available current market price. This is subject to slippage, especially in fast-moving or illiquid markets.