Trailing stop is an adaptive tool for protecting profits and minimizing losses.

Trailing stop is a form of dynamic order that automatically adjusts as market conditions change. Imagine a virtual trading assistant that constantly monitors the movement of your asset’s price and triggers at the right moment to lock in profits or prevent losses. This is exactly what a trailing stop order does — one of the most useful tools in a trader’s arsenal when working with spot and margin positions.

The main purpose of this tool is to minimize losses during unfavorable price movements or to lock in profits when the price moves in your favor. When you set a trailing stop, the order begins to follow the best achieved price since activation and automatically shifts by the set rollback amount.

How a trailing stop order works in different market segments

The mechanism of a trailing stop remains consistent across spot trading, margin trading, and futures contracts, but its application varies. In spot and margin trading, this tool can be used for both buying and selling. An important nuance: in perpetual futures and contracts for difference, the trailing stop functions solely as a position-closing tool, meaning it is only used when selling.

Why is this important? Because traders often face emotional trading problems — they try to track every price movement manually and make hasty decisions. An automated trailing stop mechanism eliminates the need to constantly watch the chart and allows trading according to a pre-planned strategy.

Two ways to set trailing stop parameters

The system offers flexible rollback configuration options. Traders can choose a convenient method for calculating the rollback.

Absolute value (distance in currency). You set the rollback as a fixed amount of money. For example, if you are trading the BTC/USDT pair and set a 1000 USDT rollback, the order will trigger when the price corrects by this specific amount from the most favorable level reached.

Percentage ratio. The rollback is set as a percentage of the best price recorded since activation of the trailing stop. This method is more versatile, as it automatically adapts to the volatility of the specific asset. If you are trading ETH/USDT with a 10% rollback, the order remains active regardless of the absolute price of the currency.

Practical Scenario 1: Buying with protection based on absolute value

Suppose a trader intends to buy Bitcoin and wants to set protection against a price drop. They place a trailing stop buy order for BTC/USDT with a 1000 USDT rollback. The current BTC price is 50,000 USDT.

Here’s how the scenario unfolds:

If the price continues to rise and does not fall below 50,000 USDT, the trailing stop is ready to trigger at 51,000 USDT — a market buy order will be placed.

Suppose the price then drops to 48,000 USDT. The system automatically recalculates the trigger level: if the price retraces by 1000 USDT from the new minimum (48,000), the order will trigger at 49,000 USDT.

If the market recovers to 48,500 USDT, the stop level remains at 49,000 USDT. The order waits for further decline.

The trigger occurs only when the actual correction from the minimum (48,000 USDT) reaches the full rollback of 1000 USDT. Until then, the order remains active.

Additional parameter — activation price. If you set an activation price, the trailing stop will start counting the rollback only after reaching it. If no activation price is set, the order becomes active immediately based on the current price at placement.

Practical Scenario 2: Selling with protection based on percentage

Let’s consider a more complex example with a percentage rollback. Trader B decides to sell Ethereum, setting a trailing stop for ETH/USDT with a 10% rollback. The ETH price at order placement is 4000 USDT.

If the price does not exceed the initial level of 4000 USDT, the system is ready to trigger at 3600 USDT (which corresponds to a 10% rollback from 4000), and the sell order will be executed at the market price.

When the price rises to 4100 USDT, the trigger level automatically increases. Calculation: 4100 × (1 − 10%) = 3690 USDT. This is the new protection level, corresponding to a 10% rollback from the maximum.

If the price then falls to 3700 USDT, the stop level remains at 3690 USDT, waiting for further decline.

The order triggers only when a full 10% rollback from the highest recorded price (4100 USDT) is reached. Short-term fluctuations within this range do not affect the mechanism.

If an activation price is set, the trailing stop will only start working after reaching it. Without an activation price, the order begins counting from the last executed trade’s current price.

Formula for spot trading

Based on the above examples, a simple mathematical model can be derived:

For a buy order: Trigger level = Minimum price + rollback in currency, or Minimum price × (1 + rollback in percentage)

For a sell order: Trigger level = Maximum price − rollback in currency, or Maximum price × (1 − rollback in percentage)

These formulas show that the order is always calculated relative to the most favorable price achieved since activation, not from the initial placement price.

Step-by-step placement of a trailing stop on the spot market

The process of placing a trailing stop order is intuitive and takes just a few steps.

Step 1. Open the spot trading interface and find the option to create a trailing stop order. This feature is usually located in the order type menu.

Step 2. Choose the method for specifying the rollback — either a fixed amount in currency or a percentage.

Step 3. Enter the order volume and the amount you intend to spend or receive.

Step 4. Set the activation price if needed. This parameter is optional — if you do not want to use it, uncheck the box.

Final step. Click “Buy” or “Sell” depending on your intention. The order will be successfully placed.

To monitor active orders, go to the “Open Orders” → “Trailing Stop Order” tab. There you can see full details of your positions. To edit parameters, click the pencil icon next to the order details. To cancel an order, use the cancel button in the same panel.

A trailing stop is a powerful automation tool that transforms trading from a constant monitoring scenario into a strategic activity. Proper use of a trailing stop order significantly enhances trading discipline and reduces human error risk.