Why use stop-buy orders?

Stop-buy orders help you buy shares are prices rise

Support avatar
Written by Support
Updated over a week ago

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:

Did this answer your question?