Can I use a trailing stop loss?

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Yes, you can use a trailing stop-loss on CFD and spread betting accounts with A trailing stop-loss is a type of stop-loss order that automatically adjusts the stop-loss price as the market price moves in your favour. It allows you to protect your profits by maintaining a dynamic stop level that tracks the market's price direction.

How a trailing stop works

A trailing stop will follow the market in an upward direction if you hold a long position, or move downwards if you hold a short position. The idea is that by following the market when it moves in your favour, this can lock in profits, or reduce the loss of the trade once the stop is eventually triggered. Once the trailing stop has moved up or down, it cannot move back in the opposite direction.

Please note, trailing stops are not guaranteed stops and as such, could be subject to slippage.

Trailing stop example

For example, suppose you buy a security at 600 and set a trailing stop at 550, with a distance of 50 points below your opening price. If the price starts to rise and hits a high of 601, your trailing stop would have moved up to 551. If the price continues to increase and reaches 670, your trailing stop would now be at 620. You can see that the stop ‘trails’ and maintains a distance of 50 points away from the current price, while the market is moving in your favour.

If the market then reverses and the price falls, your trailing stop will remain at 620. The stop would be triggered if the market falls below the new trailing stop level of 620.

In this case, your position would be closed, and you would realise a profit, as the stop level is now above your entry price of 600. However, if you had used a normal stop-loss set at 550 and not manually adjusted the level as the market moved, your position may eventually have closed at 550, resulting in a loss.

Using a trailing stop-loss can be a useful strategy for protecting profits while allowing your position to remain open as long as the market moves in your favour. However, it's important to be aware that slippage may still occur, which means the actual execution price could be slightly different from the trailing stop level due to rapid market movements.

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