Above-The-Market: A Market Order Type

Last Updated: 21 Nov 2024

Traders and investors in the market aim to amplify their profit. They leverage various investment strategy to achieve their profit goal. However, the profit is decided based on two crucial prices: the security’s purchase price and the selling price.

Traders/investors expect to trade the securities at specific prices to realize their profit goals. There exist various types of trade orders that ensure that trade gets executed at or closer to the expected price. Some of them are above the market orders.

This article spotlights an understanding of above-the-market, various types of above-the-market orders, and their examples.

What does Above the Market Mean?

Above the market refers to an order for trading a security at a price above its prevailing market price. The traders, who want to trade in the market’s direction yet at an expected or a fixed price, use various types of market orders.

Traders, expecting the momentum to continue, use the above-the-market order to buy or sell the securities at the desired price. For instance, traders may place a stop-loss order above the key resistance level. As a result, the trader will get the stock when the stock price breaks the resistance level.

Traders can also use above-the-market order to sell the security at a higher than current price when the market or the stock is in an uptrend. Above-the-market orders may also be used by short-sellers. For instance, if the traders believe that the stock would be overvalued at a point, they may place the sell limit order.

Contrary to the above-the-market orders, there are below-the-market orders. In such orders, traders place the orders to trade the security below the market price. Some of the types of below-the-market orders are the buy limit orders, sell stop orders and sell stop-limit orders.

Above the Market Order Types

The commonly found market order types are listed below.

• Limit Order to Sell: A limit order is a type of market order that an investor or a trader sells the security at a specific price or price better than that. However, the order would not be executed if the stock price does not reach the set limit or go higher than that.
• Stop Order to Buy: Traders can use a buy stop order to enter the trade at a stop price higher than the current market price. The traders place stop orders to buy when they expect the security prices to go up and to protect the losses from a short position. Once the stock hits the stop price, the stop order to buy becomes either a limit or a market order.
• Stop Limit Order to Buy: Traders use the buy stop limit order when they have decided the maximum price they want to pay for the stock. The buy-stop limit order assures that the investor/trader doesn’t end up paying more than the maximum expected price due to slippage.

Above the Market Example

1. Kia wants to sell the 100 shares of ABC Ltd., but not at a current trading price of Rs. 178. She is expecting the stock to go up. Therefore, she places the sell limit order above the market price, i.e. at Rs. 185. The sell order would be executed only if the stock price reaches Rs. 185 or higher.
2. The shares of XYZ Ltd. are trading in the price range of Rs. 535 to Rs. 540. However, Priyam expects that the stock price would go beyond this range, and places a buy-stop order at Rs. 544. As the stock crosses the stop price, the order becomes a market order. Therefore, the shares are purchased at the next best price available.
3. Roy is willing to buy PQR Ltd. stock which is trading at Rs. 283. The stock is expected to rise. He is ready to pay Rs. 287 and the maximum price he is willing to pay for the stock is Rs. 290. Therefore, he puts the stop price at Rs. 287 and limit price at Rs. 290. Once the stock hits the stop price, the order is executed only if it reaches Rs. 287. If the stock price exceeds the limit, the trade would not be executed.

To conclude, above-the-market order means a trading order placed at a higher price than the prevailing market price. The above-the-market order assures the traders that their orders would be either executed near to their expected price or would not be executed. Traders often use these orders with technical indicators to enter or exit the position.
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Frequently Asked Questions

How does above the market work?

Ans. If an investor wants to buy or sell the stock at a higher price than prevailing, they can put a buy/sell order above the market. The order gets filled if the stock price gets closer to the price at which the investor places the buy/sell order.

Why does above the market matter?

Ans.Investors look for opportunities to buy stocks at a lower price and sell them at a higher price. Moreover, they are not willing to suffer loss. The idea of above the market is to have the order executed only at an expected price.