Buy Stop
Definition
A buy stop is a pending order placed above the current market price. It is triggered when the ask price reaches the specified level, at which point it becomes a market buy order. Traders use buy stops to enter long positions on breakouts above resistance levels, expecting the upward momentum to continue once the level is broken.
Related Terms
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Market Order
A market order is an instruction to buy or sell an instrument immediately at the best available price. Market orders guarantee execution but not the exact price, especially during volatile conditions where slippage may occur. They are the fastest order type and are used when immediate execution is more important than getting a specific price.
Limit Order
A limit order is an instruction to buy or sell at a specified price or better. A buy limit is placed below the current price, while a sell limit is placed above. Limit orders guarantee the execution price but not execution itself, as the market must reach the specified level. They are preferred when traders want to enter at a specific price rather than the current market price.
Stop Order
A stop order becomes a market order when the price reaches a specified trigger level. A buy stop is placed above the current price (to catch breakouts), while a sell stop is placed below (to trade breakdowns). Stop orders are used for breakout trading strategies and as stop losses. They guarantee execution once triggered but may experience slippage.
Sell Stop
A sell stop is a pending order placed below the current market price. It is triggered when the bid price reaches the specified level, at which point it becomes a market sell order. Traders use sell stops to enter short positions on breakdowns below support levels, expecting the downward momentum to continue once the level is broken.
Buy Limit
A buy limit is a pending order placed below the current market price. It is executed when the ask price drops to the specified level. Traders use buy limits to enter long positions at a lower price, anticipating that the market will bounce from a support level or retrace before continuing upward. This order type ensures you buy at your desired price or better.
Sell Limit
A sell limit is a pending order placed above the current market price. It is executed when the bid price rises to the specified level. Traders use sell limits to enter short positions at a higher price, anticipating that the market will reverse from a resistance level. This order type ensures you sell at your desired price or better.
OCO (One Cancels the Other)
An OCO order is a pair of conditional orders where the execution of one automatically cancels the other. It typically combines a limit order and a stop order on the same instrument. For example, a trader may set a take profit (limit) and stop loss (stop) as an OCO pair, ensuring that when one is triggered, the other is removed to prevent conflicting positions.
GTC (Good Till Cancelled)
A Good Till Cancelled order remains active in the market until it is either executed or manually cancelled by the trader. Unlike day orders that expire at the end of the trading session, GTC orders persist indefinitely. They are commonly used for limit orders at key technical levels where the trader is willing to wait for the price to reach their desired entry point.
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