What is a trailing stop order?

A trailing stop is a modification of a typical stop order that can be set at a defined percentage or dollar amount away from a security's current market price.

For a long position, an investor places a trailing stop loss below the current market price. For a short position, an investor places the trailing stop above the current market price.

A trailing stop is an order type designed to lock in profits or limit losses as a trade moves favorably.

Trailing stops only move if the price moves favorably. Once it moves to lock in a profit or reduce a loss, it does not move back in the other direction.