A trailing step is a dynamic risk management tool used in trading to protect profits and limit losses. Unlike a fixed stop-loss, a trailing step adjusts automatically as the price moves in the trader’s favour, maintaining a set distance (the "step") from the current price. This creates a balance between locking in gains and allowing room for market fluctuations.

The relationship between a trailing step and risk management is rooted in its ability to minimize downside risk while maximizing upside potential. By trailing the price at a defined step, it ensures that losses are capped if the market reverses, while also securing profits as the trend continues. This adaptability is particularly useful in volatile markets, where price movements can be unpredictable.

For example, if a trader sets a trailing step of 10 pips on a long position, the stop-loss will increase in 10-pip increments as the price rises. This protects against sudden reversals without prematurely exiting the trade. The trailing step also reduces emotional decision-making by automating the exit process, ensuring disciplined adherence to the trading plan.

In summary, a trailing step enhances risk management by dynamically adjusting to market conditions, protecting profits, and limiting losses, making it a valuable tool for traders seeking to optimize their risk-reward ratio.