Buy stop
Family II · Orders
Not to be confused with buy limit, stop loss, stop limit order, stop order.
Buy stop is a conditional order that instructs a broker to buy an instrument at the prevailing market price once the instrument trades at or above a pre-set trigger price. The trigger is always placed above the current market price, so the order rests inactive until the market rises to meet it. On activation it becomes a market order, meaning the fill price is not guaranteed and can differ from the trigger.
How a buy stop works
A buy stop is a stop order, so it does not sit in the order book as a limit order. It waits until the market trades at or through the trigger price, then sends a market order to buy. Because the resulting order is a market order, the actual fill can be above the trigger in fast or thin markets.
Buy stops are commonly used to enter a position on a breakout, to limit the loss on a short position, or to add to a long position as price rises. The trigger level is set by the trader and can be adjusted or cancelled before it is elected.
Worked example
A trader wants to buy a stock that is currently trading at 48.00 and expects a breakout above 50.00. They place a buy stop with a trigger of 50.00.
The fill may be at 50.00, above it, or occasionally below it if the market gaps or moves quickly, because the order becomes a market order on activation.
Placement and risk
A buy stop must be placed above the current market price. If it is placed below, it would be triggered immediately and would function as a market order. Some markets and brokers restrict stop orders or use different order types for the same purpose; the exact rules vary by venue and jurisdiction.
Slippage is the main risk: the market order created on activation can fill at a worse price than the trigger, especially around news events or at the open. A buy stop does not cap the purchase price.
Often confused with
- buy limit
- A buy limit is placed below the current market price and fills at the limit or better, whereas a buy stop is placed above the market and fills at the market once triggered; the visible sign is whether the trigger sits below (buy limit) or above (buy stop) the current price.
- stop loss
- A stop loss is an order designed to close an existing position at a loss, while a buy stop can be used to open a long position or to close a short position; the visible sign is that a stop loss is attached to an open position, whereas a buy stop can stand alone as an entry order.
- stop limit order
- A stop limit order becomes a limit order at a specified price after the stop is triggered, so the fill price is capped but the order may not execute, whereas a buy stop becomes a market order and will execute but without a price cap; the visible sign is the presence of a second limit price in a stop limit order.
- stop order
- A stop order is the general category that includes both buy stops and sell stops, while a buy stop is specifically the buy side of that category; the visible sign is the direction of the trigger relative to the current price and the side of the resulting order.