There are two main reasons why you’d use stop-buy orders:
To buy shares as prices are rising
This especially applies to growth companies. Let's say Company X has a share price that’s sat around $18-19 for a while. You believe the company has huge growth potential because it’s making a miracle cure for hair loss, you also feel that there’s often a psychological barrier for share prices to get to a new round number. So you place a stop-buy order for $20 a share because you believe once that price is hit, the floodgates will unlock and the share price will continue to rise.
While you may pay more than $20 a share, you placed the stop-buy because you believed the price would keep rising. While you’re not necessarily ‘buying low’, you're buying lower than you otherwise could!
The risk you take when placing a stop-buy order is that the US markets are very volatile. Over a normal US market day, share prices can swing up or down by 10 or 20%, so your stop-buy could be triggered just before the share price starts to drop. This means that instead of paying a slight premium to buy shares on the way up, you may have paid top dollar for them.
Many investors live by a philosophy of ‘time in the market, not timing the market’. They dollar cost average their investments and often set up auto-investments to reduce the risk of getting caught up in their emotions.
To protect yourself against losses
Stop-buy orders can also help you limit your losses when you short shares. Investors can't short individual companies through Hatch, so they’re not much help here! However stop-loss orders can help you protect against losses that arise from investing in Inverse ETFs.
All order types available through Hatch:
Market orders: Buy and sell shares as soon as possible
Limit orders: Give you control over the price you buy and sell shares for
Auto-investing: Set-and-forget your investments