Brokers With Trailing Stop Loss

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Tobias Robinson

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Brokers with trailing stop loss help investors take advantage of an asset’s growth while still providing a safety net in the case of a trade not working out. Alongside the take profit order, trailing stop loss orders are one of the most popular methods of managing risk.

This guide to trading with trailing stop losses will explain how they work, their pros and cons, plus how to set up a trailing stop loss order. We also list top UK brokers with trailing stop loss.

What Is A Trailing Stop Loss?

A stop loss order is a risk management tool that helps to limit the total loss and therefore risk associated with a trade. It is an automated order that triggers the closing of a contract when an asset’s value reaches a certain amount. This amount is called the stop price.

A trailing stop loss is a type of stop loss order that allows the stop price to change so that investors can secure profits if the market moves in their favour. For instance, if you open a long CFD trade and the asset increases in value immediately after you open the contract, the stop price will follow the increase. If the asset then declines in value and hits the trailing stop price, the investor will have secured a greater return than if they had used a normal stop loss order.

Brokers with trailing stop loss allow their clients to determine the trailing distance either using a percentage or a fixed amount. For example, the trailing stop loss could be 10% away from the market price or £10 away.

How Does It Work?

Let’s look at an example of how a trailing stop loss could work…

The current value of Barclays stock listed on the London Stock Exchange is 161 GBP. Let’s say you open a buy contract with a trailing stop loss at a 5% decrease, which at open is 152.95 GBP. After the contract opening, BARC.L initially increased to 173 GBP but is now worth 140 GBP.

If you had used a normal stop loss order, you would have made a loss of 8.05 GBP (161 GBP – 152.95 GBP). However, with
a trailing stop loss, the stop price would have increased to 164.35 GBP (173 GBP x .95) following the initial market growth. Meaning when the stock price declined again, the new limit would be triggered and you would return a profit of 3.35 GBP (161 GBP – 164.35 GBP).

In this example, the profit and loss in each instance are not large but they show how a trailing stop loss can be beneficial, especially compared to normal stop loss orders.

Pros Of Brokers With Trailing Stop Losses

Brokers with trailing stop loss orders can help limit your risk exposure, especially when trading on margin with products such as CFDs. Leverage increases your trade size meaning any profits and losses are multiplied. If 1:10 leverage had been used in the example above, the returns would be 33.5 GBP (10 x 3.35 GBP), rather than 3.35 GBP.

Incorporating a trailing stop loss order essentially helps to protect you against large losses on leveraged trades, while providing the flexibility to generate returns if the market moves in your favour.

Additional Risk Management Measures

Brokers with trailing stop loss usually also offer other orders such as take profit. A take profit order works in a similar way to a stop loss such that when an asset’s value reaches a certain price, the contract is automatically closed. These can be used alongside trailing stop loss orders to help secure profit from a winning position.

In the Barclays stock example above, if a take profit order had been placed at 170 GBP, the position would have been closed on the initial rise and a 9 GBP profit would have been returned (170 GBP – 161 GBP).

You can also use risk management techniques such as the 1% rule and portfolio diversification. The 1% rule says that you should only invest 1% of your total capital on a single trade so that an individual loss is not too damaging.

Diversifying your portfolio means spreading your money across several investments and assets. Doing this will mean there will be less impact on your entire portfolio if one or two trades go wrong.

Both of these strategies can mean that huge profits in a short space of time are less likely, but long-term, more consistent success is possible with reduced risk exposure.

For more tips on risk management techniques, check out our guide.

How To Set Up A Trailing Stop Loss Order

It is an easy process to add a trailing stop loss to your trade. This step-by-step guide is for Interactive Brokers but other trading platforms with trailing stop loss orders follow a similar method either through a mobile app or desktop terminal.

• Log in to your account and open the trading platform
• Select the asset you want to trade from the drop-down menu and create your order
• Select ‘TRAIL’ from the order type menu
• Input the amount or percentage for the trailing stop loss order. Note that this is the most recent traded value minus the amount or percentage
• Select the time limit for the trail order. If you wanted, you can enable the trailing stop loss order to apply for only a few hours
• Confirm the order

Using trailing stop loss orders on Interactive Brokers

Trailing Stop Loss Tips

When using brokers with trailing stop loss, you need to plan out where the initial stop price should be. To do this, consider both daily and longer-term volatility. If you put the stop price really close then the stop loss order could be triggered too early due to typical hourly fluctuations. If you put the stop price too far away then the stop order may not be triggered until you have incurred a large loss.

Additionally, you should not just open a trade with a trailing stop loss order and ignore it until the contract closes. You need to monitor the trade to check the asset’s performance as the market could see growth and you could reset the stop price even higher, or vice versa for a short position. It may be worthwhile setting up a notification algorithm such that you receive an alert if the asset’s value reaches a certain amount, prompting a stop price change.

Implementing trailing stop loss orders can be difficult as it requires market knowledge to recognise what the best starting stop prices are. An ideal way to get experience is through a demo account. Many brokers with trailing stop loss allow their customers to register for a paper trading account where they can invest simulated funds in a risk-free environment.

Once you have gained enough experience with trailing stop loss orders and other risk management techniques, you can move on to live trading.

Comparing Brokers With Trailing Stop Loss

To help you choose the best brokers with trailing stop loss, consider the following factors:

Trading Platform

The trading platform that brokers with trailing stop loss use will have a large impact on your trading experience. You will use these platforms to execute trades, monitor positions and complete any technical analysis, so it is important to find a high-quality platform.

Some brokers such as Admiral Markets use the world-leading MetaTrader4 (MT4) and MetaTrader 5 (MT5) platforms. Others, such as eToro, provide proprietary platforms.

Regulation

Trade with a broker licensed by the Financial Conduct Authority (FCA). As the UK’s financial regulatory authority, it mandates that licensed brokers must guarantee negative balance protection for all retail clients. This acts akin to a stop loss order so that you will never make a loss in excess of what you have deposited into your brokerage account.

Pricing

Reliable brokers with trailing stop loss will be clear about their prices including spreads, account subscription charges, deposit and withdrawal fees, and any trading commissions.

Keep in mind that any fees will eat away at your profits, so try to find competitively priced brokers that still offer a good service.

Often, if brokers advertise themselves as “free” or there is no trading commission, the quoted spreads will be wider than average.

Ratings & Reviews

You can read customer reviews and ratings to get an idea of how good or bad a broker with trailing stop loss is. This is how you can find out if the broker charges hidden fees or if there are frequent reliability and outage issues.

Reviews can be found on websites and trading forums such as Reddit, Facebook, Discord and Quora. Alternatively, we have reviewed and compared the top brokers with stop loss orders here.

Deposits & Withdrawals

The best brokers will have several options for transferring capital between your bank and trading accounts. Look for methods such as debit/credit cards and e-payments such as PayPal and Neteller.

Also, if you are new to trading, choose a platform with low or no minimum deposit and withdrawal requirements. For example, Pepperstone imposes no minimum deposit or withdrawal limit, making it one of the more affordable brokers with trailing stops.

Customer Support

Choose a broker with trailing stop loss orders that is contactable throughout the week with fast responses. For example, via live chat on the website, over the phone or through email.

Note that if your trailing stop loss did not work, it may be due to orders not processing after hours. Charles Schwab, for example, does not process stop loss orders during pre-market or post-market trading.

Bottom Line On Brokers With Trailing Stop Losses

So, is using trailing stop loss a good idea? It certainly can be. Trailing stop loss and take profit orders can help lock in profits while providing a flexible risk management tool that tracks your position when the market moves in your favour.

Use this guide to set up a trailing stop loss. And see our list of the best brokers with stop losses to find the right platform.

FAQs

Should I Use A Stop Loss Or Trailing Stop Loss Order?

Both stop loss and trailing stop loss orders are viable ways of reducing your risk exposure. A normal stop loss order is easier to understand and implement, however, a trailing stop loss offers the benefit of following positive market movements. To help you determine which is better out of the stop loss and trailing stop loss, you can practise with a paper trading account.

Is It A Good Or Bad Idea To Use Brokers With Trailing Stop Loss?

It can be an excellent idea to use brokers with trailing stop loss orders. It can be difficult to figure out how to best set up a trailing stop loss order but once you have learned how to identify the right initial stop price, it is an invaluable risk management tool.

What Are The Best Strategies To Use With Brokers With Trailing Stop?

When day trading with brokers with trailing stop losses, there are several strategies you can adopt. For example, a hedge, arbitrage or scalping strategy are all viable options. It is hard to say which of these is the best as that is dependent upon a trader’s financial goals and trading styles. A good idea would be to register a demo account and try out different strategies until you find a system you are comfortable with.

Will Using Brokers With Trailing Stop Loss Remove Risk Altogether?

No – because all trades carry a degree of risk. Using a broker with trailing stop losses may reduce your exposure, but you can still lose money. With that in mind, only risk what you can afford to lose.

Where Can I Learn More About Brokers With Trailing Stops?

Many of the best brokers have education sections with FAQs for beginners where you can have definitions and trading concepts explained. Brokers with trailing stop loss orders also often provide step-by-step videos to guide you through deciding how to execute a trade with a stop loss and how long a stop loss needs to last.