Trailing stop-loss

As an investor, avoiding big losses is at least as important as making profits. For example, if an initial investment of £1,000 falls in value to, say, just £500 - a 50% drop - you'll need to double your money just to break even. Here's where stop-loss orders come in.

A conventional stop-loss will simply ensure you get out of the market at a fixed price above or below your initial trading price.However, a trailing stop allows you to keep more of your profits.

For example, say you set a trailing stop at 25%, having bought shares for £10 each. The first trailing stop-loss kicks in at £7.50. If the share price then rises to £15, the new stop-loss level becomes £11.25, locking in a £1.25 minimum profit even if prices fall.Usually you'll pay a broker a bit more for this type of trailing stop-loss order.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.