Buy stop

A buy stop is a pending order placed above the current ask. When the ask reaches the level, the order is triggered and sent as a market order, filling at the best available price.

The logic is "I only want to buy if the price proves it can rise this far". Traders use buy stops to enter breakouts above resistance or a range, and the same mechanism is used to close a short position at a loss, which is how a stop-loss on a sell trade works.

Example

Illustrative figures: USD/JPY has been ranging between 149.20 and 149.80. With the price at 149.55, you place a buy stop at 149.85, just above the top of the range, with a stop-loss at 149.45.

• If the price rises to 149.85, the order triggers and fills around there.
• Your risk is about 40 pips if it fills at your level.
• In a fast market the fill might come at 149.88, adding 3 pips of slippage to the risk.

Points to understand

• Fills are not exact. Because the order becomes a market order, the fill can be worse than the trigger, especially around data releases or at the weekend open. A stop-limit order caps the price but may not fill at all.
• False breakouts. Prices often poke above a range and fall back. A buy stop fills on the poke, and the stop-loss then gets hit.
• Spread. The trigger uses the ask, so on a bid chart the order can fill before the candle visibly reaches the line.

The buy limit is the opposite approach: buying on a dip rather than on strength. Our guide to buy limit vs buy stop and the order types guide compare them.