Buy Stop and Sell Stop

When trading in the markets, a pending order is a predefined price used to automatically buy or sell an asset at some point in the future. The order is executed automatically once the instrument's market price reaches the specified level.

The two most popular pending orders utilized by traders are the Buy Stop and the Sell Stop.

Key Pending Order Types

  • Buy Stop

    A Buy Stop is a price level set by the trader when they anticipate that the asset's price will keep rising, and they wish to enter a long position above the current market price.

    The predefined price for the Buy Stop is always higher than the current market price of the asset in question.

    Example: A trader sets a Buy Stop at 1.24, anticipating that once the price reaches that level, it will continue to move higher.

  • Sell Stop

    A Sell Stop is a price level set by the trader when they anticipate that the asset's price will fall, and they wish to enter a short position below the current market price.

    The predefined price for the Sell Stop is always lower than the current market price of the asset in question.

    Example: A trader sets a Sell Stop at 1.20, anticipating that if the price falls to this level, it will continue to decline.


Detailed Summary

The provided text explains pending orders in market trading, which are predefined prices set to automatically execute a buy or sell transaction in the future when the asset's market price reaches that level. It focuses specifically on the two most common types: the Buy Stop and the Sell Stop.

Key Takeaways

  • A pending order is a predefined price used to automatically execute a trade in the future.
  • Pending orders execute automatically once the market price reaches the specified level.
  • The Buy Stop is set above the current market price when a trader anticipates the price will continue rising.
  • The purpose of a Buy Stop is to enter a long position (buying) as the upward momentum is confirmed.
  • The Sell Stop is set below the current market price when a trader anticipates the price will continue falling.
  • The purpose of a Sell Stop is to enter a short position (selling) as the downward momentum is confirmed.