What's a stop-buy order?
Unlike limit buy orders, where you attempt to buy shares at a lower share price, stop-buy orders enable you to buy shares at a higher share price. Yes, we said that right! Stop-buys allow you to ‘buy high’, which may seem like an odd thing to do when the conventional wisdom is to buy shares for the lowest price possible.
Many investors will never use stop-buy orders, and they are controversial. If you’re following a dollar-cost averaging strategy, or are a long term investor who’s not at all interested in short term price changes, you can safely ignore them!
How do they work?
When you make a stop-buy order, it’ll turn into a market order as soon as the share price hits the one you entered. That means that you may not get the price you want, you’ll just get the best available price once your stop-buy order is triggered and your order is placed.
- You place a stop-buy order for Company X at a share price of $120
- Their share price hits $120
- Your stop-buy order becomes a market order and is placed in real time.
Note: If the price leap-frogs from $120 to $125 (or $150 etc.), that’s the price you’ll pay to buy your shares.
Stop-buy orders feel a little overwhelming?
If you’re wondering if this whole investing thing is just too hard and maybe not your vibe, watch this 5 minute video - we explain how you can ignore all the complex and technical Wolf of Wall Street-esque tricks of the trade and focus on one simple rule when you invest: Don’t trade stocks, buy businesses. If it’s good enough for Warren Buffet, it’s probably good enough for you: