DEFINITION of ‘Above The Market’
Above the market refers to an order to buy or sell at a price higher than the current market price. The most common above the market orders include limit orders to sell, stop orders to buy, or stop-limit orders to buy.
BREAKING DOWN ‘Above The Market’
Above the market orders are often used by momentum traders that want to trade in the same direction as the prevailing market but need to wait for a trigger. For example, a momentum trader might place a stop order above a key resistance level to buy the stock once it breaks out. Should the security’s price break through the resistance level, the investor may be able to participate in the subsequent upward trend.
Short sellers may also use above the market orders to strategically enter short positions. For example, a short seller may believe that a stock has become overvalued after it reaches a certain point. They might place a limit order to sell (short) at that point to automatically initiate a short position without worrying about constantly keeping an eye on the stock.
Traders often pair above the market orders with various forms of technical analysis. For example, a trader may identify a trigger point when looking at a chart pattern and use that trigger point to either enter a long position or exit a long position.
The opposite of above the market orders are below the market orders, which are placed when a trader or investor wishes to purchase a security at a lower price. These order types are much more common, since they’re used by both traders and investors, and include limit orders to buy, stop orders to sell, and stop-limit orders to sell.
Above the Market Order Types
The most common above the market order types include:
- Limit Order to Sell – A trader or investor that already owns shares may place a limit order to sell at a price higher than the current market price. These are also known as take-profit (T/P) orders since the trader or investor is locking in profits.
- Stop Order to Buy – A trader that is waiting for a security to breakthrough a key resistance level may place a stop order to buy at a price higher than the current market price. These orders are commonly used by momentum traders.
- Stop-Limit Order to Buy – A trader that wants to purchase shares at a specific price – and no higher – can place a stop-limit order to buy, which makes sure that they don’t pay unexpectedly high prices due to slippage.