Buy on Stop Orders are a useful tool to help you minimize the upside risk of holding a short stock position if prices take a sudden upturn. Since Buy on Stop Orders are placed above the current market price, you can use them in two ways: to minimize your losses if a stock that you hold a short position on isn’t performing as you had anticipated; or to protect your profits if the price of a stock you have a short position on falls, hits a low point and then begins to rise.

Investors will often place a Buy on Stop Order to buy a security once the price exceeds the prevailing resistance level – an invisible price barrier it has recently been unable to rise above – in the hope that once the security breaks through the resistance level there will be upward momentum on it.

To illustrate how Buy on Stop Orders work, let’s look at two examples based on stock XYZ sold short at $10.00 per share.

1. Minimizing your losses

You may already be managing your portfolio on your own with an investment strategy that minimizes your losses. For example, if you are not prepared to hold any short stock position after it loses 25% of its original value, then you would want to actively check the market and place an order to buy stock XYZ if it hits $12.50.

Using the above example, once your order to sell short XYZ is filled at $10.00 per share you can immediately place a Buy on Stop Order with a Stop Price of $12.50. You can set your order’s maximum duration at up to 45 days by selecting a preferred Good Till date. Your order will be tracked through its Good Till date, and if the stock price rises and reaches your Buy on Stop Price of $12.50, your order will be triggered*. It then becomes a Market Order, and will be filled on a best-efforts basis at the optimal market price.

2. Protecting your profits

Consider how Buy on Stop Orders can protect your profits. Stock XYZ’s price falls to a market value of $5.00. You aren’t ready to buy it yet, but you want to protect your “paper” profits. You have now made a 50% return on your investment. You want to realize at least a 25% return on your investment should stock XYZ’s price suddenly start to rise.

Using a Buy on Stop Order, you can set your Stop Price to $7.50. You can specify a duration of up to 45 days by selecting a Good Till date.

If stock XYZ’s price continues to fall, your Buy on Stop Order is managed through its Good Till date. If stock XYZ’s price begins to rise, your order will be triggered* when it reaches your Buy on Stop Price, in this example $7.50. It then becomes a Market Order, and will be filled on a best-efforts basis at the optimal market price.


For related information, please refer to
Sell Stop Orders
Trailing Stop Orders
Hard Stop Orders
Stop Orders - Frequently Asked Questions