Trailing stop in perpetual trading and futures: dynamic risk management

Trailing stop — is a universal tool for traders who want to protect their positions without constant market monitoring. Instead of setting a fixed stop-loss, a trailing stop allows your protective order to automatically adjust to price changes in your favor. When the price moves in your direction, the trailing stop “follows” it, but if the price reverses — a market order is triggered, closing the position at the best available price.

What is trailing and how does it work

A trailing stop tracks the movement of the market price of an asset and automatically adjusts the protection level according to your set parameters. This feature works equally well in spot and margin trading, as well as in perpetual contracts and futures, but with one important difference: for prospective positions (in contract trading), trailing is used solely as a tool to close an open position, not to open one.

The basic principle of trailing is simple: you set a rollback parameter, and if the price reaches a favorable level and then pulls back by the specified amount, a market order is triggered to close the position.

Note: On some platforms, the trailing function is available starting from certain app versions, so check that your version meets the requirements.

Two methods of setting up trailing: by distance and by percentage

Trailing can be configured in two different ways depending on your risk management approach:

By distance (absolute value): The trailing tracks the price based on a fixed difference between the current best price and the trigger level. For example, if you set a distance of 1000 USD, the stop will automatically move 1000 USD above each new high for long positions.

By percentage (relative value): The trailing tracks the price movement as a percentage of the highest reached point. This allows adapting protection to the volatility of different assets — higher percentage pullbacks are needed for larger fluctuations.

Both methods provide automatic adjustment without your intervention, but the choice depends on your trading style and position size.

Practical examples of using trailing

Example 1: Trailing with distance correction for a long position

Suppose Trader A opens a long position in BTCUSD contracts with a volume of 30,000 USD and sets a trailing distance of 1000 USD.

Here’s how it works:

• If the price does not rise above the initial level: The trailing triggers at 29,000 USD, functioning as a regular stop-loss.
• If the price rises to 31,000 USD: The trailing automatically moves up to 30,000 USD.
• If the price pulls back slightly to 30,500 USD: The protective order remains at 30,000 USD, as the decline is insufficient.
• When the price pulls back by the full 1000 USD: A market order closes the position.
• Activation price: If you set an activation price, the trailing will only start after reaching it.

Important: For long positions, the activation price should be above the average entry price or current market price.

Example 2: Trailing by percentage for a short position

Trader B opens a short position in BTCUSD at 31,000 USD and sets a trailing of 10%.

Scenario development:

• Without falling below the initial price: The trailing triggers at 33,000 USD as a standard protection.
• If the price drops to 29,000 USD: The trailing level decreases by 10% and is set at 31,900 USD.
• If the price bounces back to 29,500 USD: Protection remains at 31,900 USD — movement is insufficient to change it.
• When the price pulls back by the full 10% from the minimum: A market order on buy closes the short position.

Important: For short positions, the activation price should be below the average entry price or current market price.

Mathematical formula of trailing

The trigger price for trailing is calculated by the following formulas:

For long positions: highest price − distance or highest price × (1 − percentage)

For short positions: lowest price + distance or lowest price × (1 + percentage)

Trailing profit: protecting gains with a “color”

Trailing becomes especially powerful when combined with an activation price. This strategy is called trailing profit — it allows activating protection only when your position is in profit.

Trailing profit scenario

Trader B holds a long position in BTCUSDT contracts. The current market price is 28,000 USDT. The trader wants to close the position with a trail of 500 USDT, but only if the price rises above 30,000 USDT.

Decision: Set a trailing of 500 USDT and an activation price of 30,000 USDT.

Result: When the price reaches 30,000 USDT, the trailing activates with a trigger level of 29,500 USDT (30,000 USDT − 500 USDT). If the price falls below this level — the position will close, but only after profit has been secured.

This strategy allows you to rest assured that profits are protected and losses minimized.

Step-by-step setting up trailing in contract trading

The process of setting up trailing is intuitive and takes just a few steps:

Step 1: Open the perpetual or futures trading tab and find your open position on the position management screen.

Step 2: Click the Trailing Stop button next to your position parameters.

Step 3: Choose the trigger method — either by absolute distance in USD or by percentage of the best price.

Step 4: If needed, set an activation price (optional). If you set it, trailing will only start after reaching this level. Leaving it blank activates trailing immediately.

Step 5: Click Confirm — the trailing is set and active.

Viewing and editing: You can view the trailing parameters at any time by clicking on the relevant section and edit them if needed.

Cancel: To disable trailing, click the delete icon next to the parameters and confirm.

Why is trailing stop an essential tool

Trailing solves a key trader problem: how to lock in profits and protect against losses if you cannot monitor the market 24/7. This tool works for you, adapting to every market movement. Regardless of your experience — whether you are a beginner or an experienced trader — trailing helps manage risks more effectively.