A trailing stop-loss order, unlike a regular stop-loss, will follow, or trail, the price of a trade as it fluctuates. The trailing stop is set a percentage, or a specific number of points, away from the current market price, which accommodates for the fluctuation in the assets value, as the stop-loss adjusts.
For example, on a buy trade, the trailing stop will rise as the price of the asset rises, staying a pre-set distance away. If the market then begins to fall, the trailing stop remains at its new higher level. These stops aim to lock in profit by moving in the direction of a winning trade, while ensuring a cap is in place, in case the trade doesnt go in your favour.
Likewise to a regular stop-loss order, a trailing stop does not guarantee that youll exit the position on the price you set. If the market gaps or you experience slippage above or below your set stop-loss, your position will be closed at the next available price.