What is a Buy Stop and Sell Stop in Trading?
When trading in the markets, people place pending orders. These are predefined price levels which signal a buy or sell order of an asset at some point in the future. Once the price of the instrument they are trading reaches a certain level, the order is executed. Two of the most popular pending orders traders place are the “Buy Stop” and the “Sell Stop”.
A Buy Stop is the price level set by the trader when they wish to buy an asset in the future. In contrast, Sell Stop is the price level set by the trader when they wish to sell an asset in the future. As a general rule, the predefined price for the Sell Stop is always lower than the current market price of the asset in question. Traders who sets a Sell Stops, anticipate that the price of their asset will fall. Naturally, the opposite is true for Buy Stop, where the predefined price is always higher than the current market price of the asset in question. Traders anticipate that the price of the asset will keep rising.