What is a buy-stop order?

A buy-stop order refers to an order to buy a security at the market price once the security price reaches the predefined stop price. It’s a type of stop order normally used to limit losses or protect a profit on security that is sold short. The stop order techniques are popular in stocks, derivatives, and forex markets.

What is a stop price?

The stop price is entered at a level, or strike, set above the current market price. It is a strategy to profit from an upward movement in a stock’s price by placing an order in advance. Buy stop orders can also be used to protect against unlimited losses of an uncovered short position.

What is a stop-loss order?

Stop-loss orders specify that a security is to be bought or sold at market when it reaches a predetermined price known as the stop price. A stop order is an order type that can be used to limit losses as well as enter the market on a potential breakout.

When should you place a buy stop?

If the price has declined significantly and the investor is seeking to protect their profitable position against subsequent upward movement, they can place the buy stop below the original opening price.