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A buy stop order is an order to buy a stock at a specific price above its current market price.

By placing a buy stop order, the investor sets the price at which he will buy the stock in advance, thus eliminating the danger of missing the price point and the chance to buy stock that potentially will provide a good return.

John thinks Stock Z is going to climb, and climb by a lot. So John places a buy stop order on the stock for $110. It’s currently trading at $100 a share. Once the stock reaches $110, his order takes effect.

The biggest benefit to buy stop orders is that the investor’s purchase only takes place if the stock is showing upward momentum. If an investor’s intuition or analysis about a certain stock’s upward trend is correct, he’ll be rewarded for his initiative and insight.

A buy stop order saves time for investors. The deal is set in place and ready to go without the investor having to actually monitor the change in stock price. This avoids stress or emotion getting the best of the investor’s good sense.

The danger with buy stop orders is an investor might set a price that turns out to be the stock’s highest value, leaving him with a negative return.

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