A trailing stop order provides flexibility over a stop order by executing once the market goes against you by a defined price, called the price distance. When margin trading, a trailing stop sell order can be used to protect profit.
Example: If the trader is in a long position and the current market price is 250 after a quick rise from 225, a trader can set a trailing stop with a price distance of 5. This will create a sell stop order at 245. As opposed to a normal stop order, if the market price continues to rise to 275, then the trailing stop rises accordingly, always staying 5 behind the market price; rising to 270 in this example.
The stop price trails behind the market price by the amount specified as price distance and allows for a stop to adjust to the market if the market moves in a profitable direction. If the stop is triggered, a market order is placed.
A trailing stop order will only adjust based on ticker prices, which updates every 15 seconds. Therefore if the price moves in an advantageous direction but returns before the next ticker is updated, the trigger price will not be adjusted.
Example: If a trader has a trailing stop buy with a price distance of 10, when the ticker price is 200, and the price goes down to 190 then back up to 200, it will trigger a stop order. However, if the price drops from 200 to 190 USD then went back up to 200 before the ticker adjusted, it would not trigger the stop order.