A Buy Stop Order is an order placed above the current market price.
The order gets triggered if the price were to reach that level.
(And the opposite is a Sell Stop Order.)
So, how does a Buy Stop Order work?
Let me explain…
Let’s say you want to buy EUR/USD.
Its exchange rate now is 1.12345.
Let’s assume you want to enter only when the price makes new highs.
So you’ll place a Buy Stop Order at a price higher than 1.12345.
You could place it at 1.12400 for example.
The Buy Stop Order will be triggered if EUR/USD hits 1.12400 or higher.
Let’s say you want to buy Amazon shares.
But maybe you don’t want to buy now unless there are fundamental catalysts to confirm the bullish trend.
And you want to let that reflect on the share price.
What should you do?
Assume Amazon’s share price is $1,900 now.
You’ll buy only if it makes new highs.
So you could place a Buy Stop Order at $2,000 to be in the trade when its share price rallies.
Pretty straightforward, isn’t it?