Trailing-stop orders are an order type that activates once/if the market price goes against you by a set amount, referred to as the Trail Amount, providing you with added flexibility and automation. The stop price follows the market at a fixed distance if the price is moving in favor of your order. The stop price remains unchanged when the market is moving against the trader, however, protecting against potential losses. This enables a trader to specify a limit on the maximum possible loss (the trail amount), without having to set a limit on the maximum possible gain. When the market reaches the trigger price, a market order is activated.
Example: If a trader is in a long position and the current price is 500, a trader can open trailing-stop orders with a price distance of 20. This will create a sell stop order at 480. Contrary to a normal stop order, if the price continues to rise to 550, the trailing stop rises accordingly to 530. If the price falls to 530, a market order is activated.