DEFINITION of Buy-Minus
A buy-minus order is a type of order in which a client instructs a broker to purchase a stock at a figure below the current market price. Buy-minus orders are used when a trader is hoping to acquire a stock when its price declines briefly. Traders can further restrict buy-minus orders by specifying a limit, or the highest price at which the stock should be acquired.
BREAKING DOWN Buy-Minus
A buy-minus order involves the execution of an order to purchase a specific number of shares of stock or other securities with the stipulation that the order to buy is not executed unless certain market conditions are met. In particular, the stock price must drop below the previous market price.
With a buy-minus order, the market price is equal to or less than the cost of the last trade for the same stock or security. Also, the price on the previous trade must have been a minus. To be a minus, the price on the last trade also had to have been to be less, and the minimum change in the stock price had to have been either an uptick or a zero-plus tick. Many investors attempt to buy stocks below market price, with a buy-minus strategy specifically in mind.
If an investor wants to enter a buy-minus order, it is necessary for the investor to first look at the current market price of the security. The current market price will set the starting point for evaluating the performance of the security. Next, the investor must look at the previous trading price. The investor must look for is any sign that the security might eventually trade at a price that is below the current market price. The investor assumes that after reaching the target lower price, the stock will rise in value at a rate that is acceptable to the investor.
Example of a Buy-Minus Order
A buy-minus order can be a good risk if the previous trade price is relatively close to the current market price. For example, if a stock is currently trading at $30 per share, but was trading at $27 per share a short time ago, the stock might be right to execute a buy-minus order. This is especially true if there is reason to believe that after buying low, the price will rise and create a profit for the investor before leveling off again. A buy-minus order is often considered a good way to realize a profit quickly, especially if the security is sold before the price peaks and begins to drop again.