to Cover Stop Order
A Buy to Cover Stop Order is very similar to a Buy
Stop Order, the only difference being this type of order
is used to exit a Short position rather than enter a Long
A Buy to Cover Stop Order is an order to cover (repurchase
the shares you have borrowed) at a price above the current
market price. Once a stock's price trades at or above the
price you have specified, it becomes a Market
Order to buy (cover).
Example: Suppose you currently have Sold Short
100 shares of Apple Computer (AAPL) at $160 and the stock's
price is currently at $150. You want to protect yourself
against a large move higher to guarantee yourself some of
your current profit ($10/share).
You place a Buy to Cover Stop Order @ $155 on AAPL.
Suppose AAPL then proceeds to trade up
to $155. At that time, your order would become a Market
Order to buy (cover) and your order would be filled at the
next best available price.
This type of order is typically used to protect against
large losses if you have a Short position and the price
of that stock rises rapidly higher, you would then exit
that position. It is also used to protect profits on an
existing Short position that has moved down already (as
in our example above).
But, once your stop price is reached and your order becomes
a Market Order to buy, you may be filled at a price higher
or lower than your stop price.