What Is a Buy?

Buy can be a term used in a number of different situations, such as the following:

1. To acquire possession and ownership of a good or service in exchange for payment, either in the form of money or the equivalent value.

2. A buy rating is an investment analyst’s recommendation to buy a security, and implies the security is undervalued. Investment banks, brokers, and researchers will issue ratings on stocks based on where they believe the stock's value to be.

3. A buy order is an instruction to a broker to buy a security. There are six types of security orders.

How a Buy Works

A simple way to think of a buy order is to consider a 401k plan for an employee. Oftentimes the employee pre-selects investment allocations based on their investment selection. When money is deducted from their paycheck for their 401k contribution, the money flows into their brokerage account and a buy order is created based on their pre-selected investment schedule.

A buy rating, also known as a strong buy, is an analyst’s recommendation to buy a security, on a scale of “buy, outperform, hold, underperform, sell."

As brokers use different stock rating scales, investors should study them, to understand what the recommendations really mean. For example, “outperform” can mean “moderate buy," “accumulate," “overweight," and “add." When equity and bond analysts change their rating on a security, it will be “upgraded” if there is a positive change, or “downgraded” if there is a negative change.