A trailing stop order works like a stop order, which is triggered once the stop price is reached and executed as a market order. However, instead of remaining at a specific level, the stop price changes when the market price moves in a favorable direction.

When placing a trailing stop order, a trail amount or percentage needs to be set (Tap the % or $ symbol to switch, shown in the picture below). The stop price is the trail amount or percentage above (in a buy order) or below (in a sell order) the current market price.

Let’s see how the stop price changes in buy and sell scenarios.

Investor A took a short position on XYZ stock when the stock price was $27. Meanwhile, he placed a trailing stop order to cover his short position with a trail amount of $3. The initial stop price is $30 and it will only move down when the market price goes down. As shown below, the stop price goes down each time a new low is reached. When the market price drops to $25, the stop price is $28. When the stock price rises to $28 afterwards, the order is triggered and filled immediately as a market order. His losses are about $1 per share.
If the investor uses a stop order to stop losses in the same scenario, the order would have been triggered at $30. His losses would be about $3 per share.
In a different scenario, investor B bought XYZ shares at $27. Meanwhile, she placed a trailing stop order with 10% trail percentage to sell the shares. The initial stop price is $24.3 and it will only move up when the market price goes up. As shown below, the stop price goes up each time a new high is hit. When the market price rises to $33, the stop price is $29.7. When the stock price drops to $29.7 afterwards, the order is triggered and filled immediately as a market order. In this case, she earns about $2.7 per share.
If the investor uses a stop order to stop losses in the same scenario, the order would only be triggered at $24.3. She would miss the upwards trend and probably lose about $2.7 per share.

To sum up:

A trailing stop order adjusts the stop price by a specified percentage or amount below or above the market price.

It adjusts the stop price automatically each time the market price moves favorably. Compared with a stop order, a trailing stop order helps investors to lock in profits or stop losses at a better price when the price moves in favorable direction.

However, same as a stop order, a trailing stop order may not be executed if the stop price is not reached. Besides, the filling price may deviate from expectations as the order is executed as a market order.

Tips:

On Webull, we only support placing trailing stop orders during market hours.
On Webull, a trailing stop order expires at the end of each trading day. If your order is not filled, you need to place the order again on the following trading day.

Disclaimer Regarding Buy/Sell Limit, Stop Loss, Sell Stop, and Stop Limit Orders:

Due to fast-moving markets, market volatility, and illiquid markets, take profit and stop loss orders may not execute in it's entirety or at all. In these instances, the stock price may skip over the set price and leave the order unexecuted or may execute at prices which are substantially different than expected.