Given I am an Index Investor these days, this post about Stop Buy is a bit out of place, but I did write it many years ago.
Just goes to show that you learn a new thing every day, especially if you have to write about it.
Initially I was going to post:
Why would I want to do that? Well if you have a lot of money hanging around and have been watching a stock and want to catch it “on the way up”. Putting a Stop Buy allows you to buy once the stock you are watching crosses the price threshold and the brokerage house will buy you shares at the price closest to that price that they can.
However after looking it up on Wikipedia , I found the following definition:
A buy stop order is typically used to limit a loss (or to protect an existing profit) on a short sale. A buy stop price is always above the current market price. For example, if an investor sells a stock short hoping the stock price goes down in order to give the borrowed shares back at a lower price (Covering), the investor may use a buy stop order to protect himself against losses if the price goes too high.
This is the REAL reason you’d use this tactic (you can also use it for the lame reason I thought it was there for, but this is the real usage).
How Do I Do That ?
This is available on my TD Waterhouse account and I have not tried it yet, however I did use the Stop Sell today selling off a “dog” in my portfolio. It’s always important to understand all of the tools available to you in your investment tactics.
What is a Short Sale, check on Wikipedia, but it is a way to make money if a stock goes down. I have never done that, although, I have wanted to do it a bunch of times, but didn’t have the nerve.
I guess I could talk about Margin accounts, but I don’t think I will since I think it is a dangerous way to get yourself in trouble quickly (but I am a very conservative investor at times as well).
Awesome… I was hoping that such an item existed! Now I just have to figure out if my broker offers Stop Buy orders.
You’re “lame” reason isn’t that lame since I was thinking the same thing (or maybe we’re both a bit lame in our reasoning). I think it would be very useful if you wanted to catch a stock breaking out above previous resistance and weren’t able to keep an eye on the stock throughout the day.