trailing stop

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Trailing Stop

An order to sell a security when the price drops below a certain percentage of a given price. If the price rises, the trailing stop remains the same percentage below the new price. However, if the price drops, the trailing stop remains the same.

For example, suppose an investor buys a security at $10 per share and sets a trailing stop at 20% below the price. If the price drops to $8, the security is automatically sold. If the price rises to $20, the trailing stop moves to $16. However, if the security is bought at $10 and the price drops to $9.50, the trailing stop remains at $8. Likewise, if the price rises to $20 and then drops to $18, the new trailing stop remains $16. See also: Advisory account.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

trailing stop

A stop order to sell (or to buy) a security in which subsequent stop orders are placed at progressively higher (or lower) levels as the stock price increases (or decreases). For example, an investor may purchase shares of Union Pacific Corporation at $60 and simultaneously place a stop order to sell the stock if it drops to $58 or below. If the stock rises to $63 without going through the $58 stop price, the investor raises the stop price to $61. Thus, the stop price trails the market price of the stock.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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