Trailing Stop Loss Orders in the UK - A Comprehensive Guide 2025

One of the main priorities in trading the financial markets is risk management and aiming to preserve potential gains while trying to minimise inevitable losses. This is difficult to do in practice, but there are some tools that can help. One of these tools is the trailing stop-loss order. This is an exit order that adjusts as the market moves. 

After consulting with experienced traders, this guide details what a trailing stop loss is, how it works and how to integrate it into a trading strategy. Whether you’re an experienced trader or just getting started, understanding trailing stop-loss orders is vital for effective risk management. 

This material is for informational purposes only and not financial advice. Consult a financial advisor before making investment decisions. 

What is a Trailing Stop Loss Order? 

Definition and Purpose 

A trailing stop-loss order is a type of stop-loss that moves with the market price. A stop-loss is an order with an instruction to exit a trade at a set, pre-determined price. Unlike a standard stop-loss order, a trailing stop-loss adjusts dynamically as the market price fluctuates.  

There are two purposes for using a trailing stop-loss order. Firstly, to try and lock in and preserve any potential gains. Secondly, to try and minimise potential losses. By trailing a stop-loss as the market moves in your favour, then any pullbacks will trigger the stop-loss and exit the trade.  

It’s important to know that a trailing stop-loss can only work if the trade is moving in your chosen direction. This is not always the case, and your trade may move in the opposite direction and head directly to your standard stop-loss, thereby triggering a full loss on the trade.   

How It Works in Trading 

Let’s consider a hypothetical scenario involving an FTSE 100 stock. Trader A purchases shares of a blue-chip company at £100 per share. They set a trailing stop-loss order at 10% below the highest price reached. If the stock climbs to £120, the trailing stop-loss would automatically adjust to £108 (10% below £120). Illustrative purposes only, this does not reflect actual trading outcomes 

This means that if the price drops from its peak, the trader’s stop-loss will be triggered, and the trade will be exited when the share price reaches £108. The result is that the trader has secured a profit whilst protecting against further losses. However, if the share price continues to rise, the trailing stop-loss will automatically adjust until it is eventually triggered at a future price or the trader exits the trade manually.  

Most importantly, the trailing stop-loss is only moved when the price moves in the trade’s direction. For example, when purchasing shares, the stop-loss is only trailed when the price has moved higher to lock in potential gains and minimise losses. If the price moves lower, the stop-loss does not move lower. The stock price could keep going lower for a long time, resulting in significant losses and an entire loss of capital.  

Another important note about stop-loss price orders is that they are not guaranteed. If there is a lot of negative overnight news when the stock market is closed, then a stock may open at a different price than it closed. This means a stock price could gap well below your stop-loss order, resulting in a larger-than-expected loss. While this has and could also develop in the currency market (in particular over the weekend), it happens less frequently as this market is open 24 hours a day, 5 days a week.  

Potential Benefits of Using a Trailing Stop Loss 

Trailing stop losses offer several advantages: 

• Automated Risk Management: By adjusting automatically with market movements, trailing stops eliminate the need for constant monitoring, allowing traders to manage their trades more efficiently.
• Profit Protection: As the order “trails” the market, it secures potential gains by ensuring that a reversal in the market triggers an exit at a level close to recent price action.
• Reduced Emotional Decision-Making: Automated orders may help prevent impulsive decisions driven by fear or greed. This is particularly valuable in volatile markets, where emotions can lead to costly mistakes.

Potential Drawbacks of a Trailing Stop Loss 

There are several downsides to a trailing stop-loss: 

• Premature Exits: In highly volatile trading environments, price fluctuations might trigger the trailing stop too early, resulting in an exit before the market resumes an upward trend.
• Difficult to Ascertain the Right Parameters: Setting the right trailing percentage or amount is crucial, yet very difficult. Too tight a setting may lead to frequent, unwanted exits, while too loose a setting might not protect profits effectively.
• Market Gaps: During periods of low liquidity, unexpected news events and closing to opening price activity, price gaps can occur. This means that the stop-loss order might be executed at a price significantly different from the set level, resulting in a larger-than-expected loss.

Trailing Stop Losses in Action: UK Financial Markets 

FTSE 100 and Trailing Stop Losses 

The FTSE 100 is a stock market index representing the value of the largest 100 companies by market capitalisation, listed on the London Stock Exchange. The index includes companies in all industries, with significant weighting in oil, gas, mining, and banking. Some FTSE 100 shares include BP, Shell, HSBC, Barclays, Anglo-American and others. 

When a company lists its shares on a stock market, it does so for many reasons, including raising capital from shareholders. The company then uses this capital to try and grow the business to provide shareholder value. This means that some companies can exhibit a share price that grows over time.  

A trailing stop-loss is useful in trying to capitalise on any long-term trends that develop in a company’s share price. The challenge is to find a company that can grow its share price in the long term. Many companies do not perform well and have a declining share price. 

Other UK Markets: FTSE 250 and AIM 

Beyond the FTSE 100, the UK financial markets include indices such as the FTSE 250 and AIM. The FTSE 250 features mid-cap companies that often offer higher growth potential, though with increased volatility. The AIM, known for hosting smaller, innovative companies, presents an even more dynamic trading environment. Investing in smaller-cap stocks, such as those in the FTSE 250 or AIM, involves higher volatility and risk, which may impact the effectiveness of trailing stop-loss orders. 

In these markets, trailing stop losses can help manage the higher risk/reward profile by protecting profits during upward trends while ensuring that losses are kept in check during downturns. 

The challenge is defining the parameters of a trailing stop-loss. For example, a 10% trailing stop-loss may be too tight for a stock that regularly moves up and down each day 5%. Alternatively, if the stock only moves 1% a day, then a 10% trailing stop-loss may not be effective to manage the downturns.  

A trailing stop-loss can also be used on currency pairs, stock indices and commodities.

Integrating Trailing Stop Losses into Your Investment Strategy 

Technical Analysis and Trailing Stop Losses 

The effective use of trailing stop-loss orders depends on the trader’s ability to determine the most optimal setting for these orders. Even experienced traders can get this wrong, as no one can predict how the market will move in the future.  

However, there are some technical analysis tools that can help in this process: 

• Moving Averages: A moving average plots a line on a chart showing the average closing price of a user-defined number of bars, or days if in a daily chart. They can help to determine trends in the market and offer support and resistance levels, including trailing stop-loss thresholds. For example, if a stock is trading above its 50-day moving average, the moving average can serve as a dynamic support level to trail the stop-loss underneath. 
• Bollinger Bands: Bollinger bands have three lines on a chart and aim to measure market volatility. They can help to indicate when a trailing stop might be set too tightly or too loosely. Wider bands suggest higher volatility, which may warrant a wider stop-loss. Narrower bands suggest that a tighter stop-loss might be more appropriate. 
• Support and Resistance Levels: Technical analysts often look to historical price data to identify key levels of support and resistance - instances where price turns have developed many times in the past. Some traders may position a trailing stop-loss below a strong support level (or above a resistance level for short positions).  
• Average True Range: The average true range (ATR) is another volatility indicator. It measures the degree of price movement over a specified period. For example, using an ATR 14 setting on a daily chart will show the average true range of the last 14 daily bars. If it indicates that a stock has an average true range of 15 points, then using a 5-point trailing stop-loss will likely be too tight, resulting in many premature exits.

Risk Management with Trailing Stop Losses 

While trailing stop losses are a powerful tool, they should be part of a broader risk management strategy. It’s also important to consider: 

• Position Sizing: Even with an effective stop-loss in place, overexposure to a single asset can lead to substantial portfolio risk. Position sizing ensures that no single trade has the potential to wipe out your overall portfolio. It’s important to keep the position sizing as low as possible to protect the portfolio from a string of inevitable losing trades.
• Diversification: Combining trailing stop orders with a diversified portfolio can help mitigate some of the risks associated with an individual stock’s volatility. Trading one stock means all your eggs are in one basket. A diversified approach means that you spread your risk across many markets, sectors and industries.
• Regular Review: Market conditions change over time. Regularly reviewing and adjusting your trailing stop-loss parameters in response to evolving market trends is essential for maintaining their effectiveness.

Implementing Trailing Stop Losses on UK Trading Platforms 

Admiral Markets offers traders access to the MetaTrader 4 and MetaTrader 5 trading platforms for desktop, web and mobile. These platforms offer live quotes from thousands of markets covering global shares (UK, US and European), foreign exchange, indices, commodities and more.  

There are multiple charting options, a wide range of technical analysis indicators and various order types to choose from. There are multiple platform tutorials, and beginners can use a demo account to practice using the platforms in a virtual environment.  

There are two different ways to use a trailing stop-loss.  

Manual Trailing Stop-Loss 

When using a manual trailing stop-loss, the trader logs into the trading platform and manually inputs a new stop-loss price. A trader can do this manually as many times as they want, thereby trailing the stop-loss over time.  

Automated Trailing Stop-Loss 

The MetaTrader 4 and MetaTrader 5 desktop platforms allow you to use an automated trailing stop-loss. However, this only works when the platform is open. Therefore, traders may consider running their trading platforms on a Virtual Private Server (VPS), which can keep the platform running 24 hours a day.

To use an automated trailing stop-loss: 

1. Log In: Open your Admiral Markets MetaTrader 4 or MetaTrader 5 platform.
2. Open a Trade: Select your chosen market from the MarketWatch window on the left. Open a trade by using the New Order tab at the top or the one-click trading icon on the chart.
3. Access the Terminal Window: The Terminal window is usually found at the bottom of the MetaTrader platform. Locate your trade in the window and right-click to set a trailing stop-loss.
4. Set Trailing Stop-Loss: You can set predefined trailing stop-loss distances in pips, such as 10, 20, 50 pips or use a custom value to set your parameter. 

Conclusion 

In conclusion, trailing stop-loss orders represent a useful risk management tool that can help to try and safeguard profits while limiting losses. While there are some benefits, there are also some drawbacks. This includes when the market gaps and how to define the right parameters. 

Effective position sizing and diversification can help to deal with a larger-than-expected loss if the market does gap. Technical analysis tools such as moving averages, Bollinger Bands and the ATR indicator can help to determine the parameters for a trailing stop-loss.  

With Admiral Markets, you can use a manual or automated trailing stop-loss. By opening a demo account, you can practice using these features in a virtual environment until you are ready to go live.  

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