But it you set an automated trailing stop for a trade, that stop will most likely rest on your computer. An order that rests on an exchange will likely be triggered in the event that your trading platform fails. However, it does have at least two major drawbacks:ĭrawback 1 – Volatility: If volatility picks up, its fluctuation range (up and down swings) may widen, potentially closing out your position even if its overall movement is heading in a favorable direction.ĭrawback 2 – Electronic Error: Only stop and limit orders rest on a commodities exchange. The automated trailing stop is a nifty hands-free platform feature. Once your position starts moving in your favor, typically you’ll see the stop moving along with it. They often give you a choice of determining the distance between stop, (e.g. Many futures trading platforms come equipped with auto-trailing stop functionality. It seems like a simple concept, but there are generally two different ways to trail a stop: automated OR manually-placed stops. A trailing stop is essentially a stop order that follows your open position as it advances. This is what “trailing stops” are all about. The purpose of a stop loss is simple to understand – a stop loss is intended to limit the trader’s potential loss should the market move against him.īut what if your position is advancing favorably and you want your stop loss to follow your open position as it advances? There are generally two reasons why you’d want to do this: to place a stop loss at a breakeven level (preventing any loss at all), or to exit at a profit when the current trend reverses. Many traders freely place a basic stop loss with every trade they enter, but trailing stops can seem more complicated and may be used less often, if at all.