Orders & ExecutionTrailing Stop LossRatchet Stop
Trailing Stop
A stop loss that automatically follows price at a set distance, moving only in the profitable direction.
What Trailing Stop means
A trailing stop is defined by a distance rather than a fixed level. As price moves in the trade's favour the stop is dragged along behind it, maintaining the specified gap; when price moves against the trade the stop stays where it is. The effect is a ratchet that locks in progressively more of an unrealised gain while leaving room for normal retracement. Distances can be set in pips or points, as a percentage, or derived from a volatility measure such as average true range so the stop adapts to conditions.
Implementation matters more than most traders expect. On some desktop platforms the trailing stop is a client-side feature: the terminal watches the price and moves the server-side stop order, so if the machine is switched off or loses connectivity the stop stops trailing and remains at its last position. Server-side trailing, offered by many web and mobile platforms and by most modern order servers, continues to work regardless. Traders relying on trailing stops overnight should confirm which model their broker uses.
The practical trade-off is between capture and survival. A tight trail banks small gains but is repeatedly stopped out by ordinary noise; a wide trail survives pullbacks but returns a large share of the open profit before exiting. Trailing stops suit trend-following approaches where a few large winners carry the results, and sit poorly with range-bound strategies that have a defined target.
Worked example
A trader goes long GBP/USD at 1.2700 with a 50 pip trailing stop, so the stop starts at 1.2650; when price reaches 1.2800 the stop has trailed to 1.2750, locking in roughly 50 pips or USD 500 on a standard lot.
Related terms
- Stop LossA resting order that closes an open position once price reaches a set level, capping the loss on that trade.
- Take ProfitA resting limit order that closes an open position once price reaches a chosen profit level.
- Average True Range (ATR)Wilder's smoothed average of the true range, measuring volatility in price units with no directional information.
- Trend FollowingA strategy family that enters in the direction of an established move and holds while it persists, rather than predicting turns.
- MetaTrader 4 (MT4)The 2005 MetaQuotes retail terminal built around MQL4 expert advisors, hedging accounts and a single-threaded strategy tester.
Frequently asked questions
What does Trailing Stop mean in forex trading?
A stop loss that automatically follows price at a set distance, moving only in the profitable direction.
How does Trailing Stop work in practice?
Implementation matters more than most traders expect. On some desktop platforms the trailing stop is a client-side feature: the terminal watches the price and moves the server-side stop order, so if the machine is switched off or loses connectivity the stop stops trailing and remains at its last position. Server-side trailing, offered by many web and mobile platforms and by most modern order servers, continues to work regardless. Traders relying on trailing stops overnight should confirm which model their broker uses.
What is an example of Trailing Stop?
A trader goes long GBP/USD at 1.2700 with a 50 pip trailing stop, so the stop starts at 1.2650; when price reaches 1.2800 the stop has trailed to 1.2750, locking in roughly 50 pips or USD 500 on a standard lot.
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