Pending orders: difference between Buy Stop and Buy Limit

What is the difference between buy stop and buy limit? When we start trading on the financial markets it is important to know what a market order is. Know what it is and what types of order there are. In this article, we explain two of these, the buy stop and buy limit.

What are Buy Stop and Buy Limit orders?

A market order is a disposition made by the client to the brokerage house to perform a certain trading operation (buy or sell). The two best known orders are Stop Loss and Take Profit. In the first order, the broker closes the operation automatically when the price begins to fall to stop losses at the level set by the client, and the take profit closes it when a profit level is reached.

There are other types of orders known as pending orders which are those established for the broker to perform operations in the future when the established conditions are met, and it is in this category that Buy Stop and Buy Limit, Sell Stop and Sell Limit enter. In order to understand the difference between these orders, the first thing we must do is to know what each one is for:

Buy Limit: it is a commercial order to buy an asset at the "Ask" price when it is equal to or less than the price indicated in the order. In other words, with the buy limit order, we dispose that the asset is bought when its price goes down to the fixed price limit, this under the premise that after that point the price of the asset will start to rise.

buy-limit

Buy stop: This order executes the purchase of an asset when it reaches a price higher than the current one, that is, the purchase is executed at the "Ask" price equal or higher than the one indicated in the order.
buy-stop

Sell limit: This order indicates that the asset should be sold at the "Bid" price equal to or higher than the price indicated in the order. They are used when it is assumed that the asset, after reaching the order price, will begin to fall.
sell-limit

Sell top: Finally, we have the sales order at the "Bid" price when it is lower than the order. It is used when the price of the asset is expected to continue to fall, that is, with a strong downward trend.
sell-stop

What is the difference between buy stop and buy limit?

Before answering the question, it is important to clarify some definitions to understand how to use the trading platform.

First, there is the market order, where you can select to bet up or down on the option you invest in. It is executed immediately, on it you can also set the take profit and stop loss, where the first one gives the order that the option once reached a certain profit point, automatically closes collecting all the profit obtained, otherwise it would be the same but assuming the loss.

However, there are orders that are not automatic, but open under a condition, which is that the price set is that of the market at that moment, the disadvantage is that the price may never reach the price indicated in our order, but as an advantage is that the order is opened at the moment we ask, unlike the automatic order, which at least millisecond may change. These four types of orders are the following:

Buy Stop, when you want to buy above a price or when you want to put an end to a loss on a sale.
Sell Stop, when you want to sell below a price or when you want to put an end to a loss on a purchase.
Buy Limit, when you want to buy at an exact price below the current price or when you want to close a sale at a set price.
Sell Limit, when you want to sell at an exact price above the current price or close a purchase at a set price.
As we have seen, both orders indicate to the broker that the client wants to buy when a certain price is reached. However, they are different and are used in two completely different cases. Let's see the difference between these two orders:

The Buy Limit is used when the trader defines that after a fall in the asset price, it will start to increase. At this low point, he places the buy limit order for the platform to execute the trade at that price because, according to his analysis, this will be the best time to buy since the asset price will start to rise.

On the contrary, the Buy stop order is used when the trader assumes that on reaching an "Ask" price higher than the current one, the price of the asset will continue to rise. In other words, he considers that the rising trend is strong and therefore should buy at a certain price. Then the good will continue to rise, which is known as a breakout, once it breaks the resistance so that the upward trend continues.

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