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.
Why should I use Buy Stop Orders in forex?
A Buy Stop can protect you against upward movement in the market if a short position moves against you.
Why should I use Sell Stop Orders?
A Sell Stop can lower the risk from a falling market, as your long position will close automatically at the price you set.
So Buy Stops and Sell Stops are types of Stop-loss Orders?
Yes, like Buy and Sell Limits, they are pending orders that set a predefined level to control your position. They also help to simplify decision-making, and save you screen time as you don’t have to watch the market.
Can I move a Buy Stop or Sell Stop that I’ve set up?
Once your trade becomes profitable, you can shift your Buy Stop or Sell Stop order to help protect your profit. For instance:
- With a long position that’s become profitable, you could move your Sell Stop from loss to the profit zone, to guard against any loss if the market turns on you.
- Similarly, for a profitable short position, you could move your Buy Stop from loss to the profit zone to protect your gain.