What is Trailing Stop? If you invest in a stock and its price falls, you may want to sell it before you take too many losses – so you place a stop loss order. If the price rises again, you may want to secure your profit at every step of the increase, so that your stop loss level follows the “trail” of the price automatically. This is the essence of Trailing Stop, a way of managing your risk.
Mathematics of the risk management
Let’s take an example:
- You buy an asset at a price of £100.
- You put Trailing Stop at -10% so that if the price drops 10% from £100 to £90, an automatic Sell Order will be activated for this asset.
- The price then rises to £120.
- The Trailing Stop follows the price automatically: the Sell Order will now be triggered at £108 – that is, if the price drops 10% from the new price of £120 (£120 – £120*10% = $108).
Essentials of Orca Trailing Stop
Here’s how the Trailing Stop feature works in Orca.
- Trailing Stop always follows the price upwards, never down.
- It moves from the previous local high to the current local high for the period.
- It is set against the current price, not the price at which you invested: if you bought an asset at £100 a week ago, but that asset is now valued at £120, you can place a Trailing Stop at £120.
- Each account – be it ISA or GIA – has its own separate Trailing Stop. Trading transactions do not affect Trailing Stops: if you buy or sell stocks of your chosen company, the Trailing Stop stays as it was set when you initially bought these stocks.
How you benefit
One half of effective risk management is limiting losses. Maximizing the profit is the other half. Trailing Stop can help with both sides of the problem freeing your mind from unnecessary worries and letting you focus on essentials of personal investment. In other words, you can enjoy choosing your favourite stocks while having your morning coffee – and Orca App does the rest for you.
Risks of Using Trailing Stops
All investment comes with risk and we can’t eliminate that with Trailing Stops. Stocks from great companies can fall for reasons unrelated to how that company is performing and if a Trailing Stop triggers you will sell the investment in and possibly miss out on a good return over the long term. Remember: don’t invest any money that you will need back quickly so that you can invest for the long term!
Cherry on top
Orca has other great features to offer. These include Collections, as well as fast and friendly support chat, and many more. They’ll all be available after the official launch in September. In the meantime, you can still sign up to the Waitlist, and participate in the Orca Giveaway to win up to 2,750 GBP worth of stocks!
The value of your investment can fall as well as rise. Capital at risk.