Buy-Minus

What Is a 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.

How a Buy-Minus Works

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 of the previous trade must have been a minus. To be a minus, the price on the last trade also had to have been 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.

Buy-Minus Order vs. Limit Order vs. Market Order

A buy minus order refers to specific broker instructions to purchase a stock at a price that is below the current market; it is intended to take advantage of a short-term decline in a stock's price.

A limit order, however, is an order to either purchase or sell a stock at a specified price (or better). A limit order can be either a buy limit order (an order to purchase a stock at the limit price or lower) or a sell limit order (an order to sell a stock at the limit price or a higher one). Limit orders are intended to help traders better control the prices at which they trade. With a limit order, the price is guaranteed, but the filling of the order is not guaranteed. An order is only filled at or better than a specific price level.

Limit orders can be contrasted with market orders. With a market order, an order will be placed no matter what; a trade is executed at the prevailing market price. As long as there are willing sellers and buyers, market orders are filled. This is the simplest of all the order types.

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.