This example takes you through a short-term position: 'selling' Spot EUR/USD with a Trailing Stop.
Example assumes you have an IGIndex account
On the morning of 21st November say IGindex EUR/USD prices stands at 13510-13511.
You believe the euro will fall against the dollar over the short term and decide you will 'sell' £10 per point at the bid price of 13510.
To limit your risk, and without having to monitor the EUR/USD price constantly, you use one of IGindex’s risk management tools. You could place a Stop Order to close the position at a less favourable level. This would close you position if the price moved against you.
However, if the price moves in your favour this Stop won't lock in profit. A Trailing Stop, however, tracks your profitable positions automatically. In this case, it would track downwards if the EUR/USD price were to fall.
You 'sell' at 13510 and place a Trailing Stop at a distance of 20 points (13530), set to move up in increments of 5.
The euro weakens against the dollar during the morning, driving their price down to 13451-13452. This is a fall of 59 points. Your Trailing Stop therefore moves by 55 points to 13475.
By midday, the price begins to move against you, but the level of this Trailing Stop stays in place. When the EUR/USD price rises to 13475 your Trailing Stop is activated, closing your position at 13475.
The result
Profit on deal
Opening level 13510
Closing level 13475
Difference 35
Profit: 35 x £10 per point = £350