A trailing stop order allows an investor to specify a stop loss limit as a percentage rather than a fixed price. This means that the stop loss limit will always be a fixed percentage below the current rate.
Example: An investor buys a security for CHF 10. Instead of selecting a stop loss limit of CHF 9, the investor uses a trailing stop order with a stop loss limit of 10%. The price of the stock climbs to CHF 13 before plunging to CHF 8.50. The trailing stop order triggers the sale of the stock when its price falls 10% below its highest point of CHF 13, so the stock is sold for CHF 11.70 and the investor makes a profit. If the investor had used a regular stop loss order with a limit of CHF 9, the sale would only have been triggered when the stock’s price hit CHF 9, and the investor would have made a loss.