Stock market is a platform where the buyers and sellers could trade in shares. There are various terminologies that are used in the market and as an investor you must be aware of such terms in order to invest wisely. The following article will give a detailed description of the term “above the market”.
Definition of Above the Market:
The above the market is a kind of order that will enable the trader to fix a price for either buying or selling of a particular stock. The price will usually be much above the current market price. There are various kinds of such order like stop order to buy, stop limit order to buy and so on. If used prudently then above the market orders can be great strategically tool in the hands of the investor that will help them gain more. Both buy and sell orders are given at a time when the price is actually above the current market price. Buy order are set in such a way because the trader presumes that even after buying the stock at a high price the upwards trend will further continue.
Though there are various orders most of them are based against the common motto buy low and sell high. This is because the trader under this above the market order will presumably set a price that is above the current market price. So he will buy at a high price as the trader believes that the price increasing trend is due to some genuine reasons and not just out of chance. So he also is confident that as per the market indicators this upward trend will remain for some more time.
Let us understand the most commonly used orders under this concept:
Buy Stop Order
As the name implies the trader will pace the order to buy a particular stock at a particular price with the broker for Buy stop order. When this order is given it means that the broker will not buy the stock unless and otherwise the current price reaches the one quoted by the trader. The trader will usually quote a higher price than the prevailing market price. In case the price does not reach the set price then the investor does not do anything at all. This is mainly used by the trader in order to get the advantage of the increasing momentum of a stock. When the price touches the set price the order becomes a simple market order and transaction is completed on the trading day itself.
The trader before placing such order would have done his homework. He would do a detailed research about the past and current performance of the particular stock. Along with this he will also consider the various market indicators and everything goes in favour of the stock and there is trend already set then he might go for this order.
Though the risk element is little as only if the price reaches a high level set by the trader the transaction is set to happen. But on problem is if the stock reaches the high set price and then immediately drops down due to market volatility then the trader stands to lose money if he had purchased the stock.
Buy Stop Limit Order
This is a type of order that will enable the trader to limit his risk for a given price range. Though there is an increasing trend in price of stock, market can turn any side at any time. Then in order to just take advantage of the momentum only to the limit of his risk bearing capacity he may issue a buy stop order along with the limit of order. The trader will fix a price range within which the stock could be purchased. This will help him avoid the risk if the broker happens to purchase the stock at extremely high price. This will decrease the risk element to a greater extent especially during high market volatility periods. Rather than giving a single price the trader will fix a price range.
Sell Limit Order
This is a very simple order and easy to understand. The trader will fix a price for the stocks that the is holding. While placing the sell limit order any trader would want to sell at the maximum price. With this intention he would, after considering several parameters, fix a price that could get him more profits. This price is much above the current market price and only if the price reaches the one that is set by the trader will the broker sell off the stock. This way the trader can be assured of a fixed price return for his stocks.