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