Stocks: How to place orders to buy and sell stocks
In order to make your trade you have to be specific about how you want
the transaction to be performed. In addition to knowing how many shares
you want to buy and sell, and symbol of the stock, you'll need to
know different types of order. The following order types are the most common
ones you'll find when placing an equity order online or the phone with a broker:
Market order - This will
tell your broker to buy or sell a security at the current market price.
Market order is executed immediately at the best possible price
available and the transaction is usually
completed within a minute. It's generally the cheapest trades to place
because there is little work or maintenance by the broker.
Limit order - When you give your broker an order to buy or sell a
stock when it reaches a certain price or better. For example, if you
place a limit order to buy a certain stock at $20 a share when its
current market price is $23 a share, your broker will not buy the stock
until its share price is $20 or lower. Or if you want to sell it at $20
and the market price is $18, your order will not be executed unless the
stock reaches $20 or better. Limit order guarantees the price you will
buy or sell a security at. Commissions on limit orders are usually more
expensive than market orders.
Stop Order - This order instructs your broker to buy or sell a
security once it trades at a certain price, called the stop price. Stop
orders are entered below the current price if you are selling and above
the current price if you are buying. For example, if you owned a stock
currently trading at $35 a share that you feared might drop in price,
you could issue a stop-loss order to sell if the price
dropped to $30 a share to protect yourself against a larger loss. Once
the stop price is reached, your order becomes a market order. If the
price drops very quickly, and other orders have been placed before
yours, the stock could actually end up selling for less than $30. If you
don't want to sell it for less than $30, you can place a stop-limit
order. With a stop-limit order, your order becomes a limit
order instead of a market order once the stop price is reached.
All or None (AON) - An order to buy or sell a security must
either fill the whole order or not fill it at all. However, the order
isn't canceled unless it is also marked FOK, or fill or kill.
Fill-or-Kill - An order for immediate execution. If it cannot be filled
immediately the order is automatically canceled.
Day Order
- An order that expires at the end of the business day if it
has not been filled.
GTC (Good Till Canceled) - If you want to buy or sell a security
at a specific price (limit order), you can ask your broker to issue a
good 'til canceled (GTC) order. When the security reaches the price
you've indicated, the broker will execute the trade. This order stays in
effect until it is filled, you cancel it, or the brokerage firm's time
limit on GTC orders expires. A GTC, also called an open order, is the
opposite of a day order, which is automatically canceled at the end of
the trading day if it isn't filled.
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What is
it mean to sell short?
Selling short is a
trading strategy that takes advantage of an anticipated drop in a
stock's price. To sell short, you borrow shares from your broker,
sell them, and keep the proceeds until the stock price drops. If
it does, you then buy back the shares at a lower price, return the
borrowed shares to your broker (plus interest and commission), and
pocket the difference.
Suppose, for example, you sell short 100 shares of stock priced at
$50 a share. When the price drops, you buy back 100 shares at $30
a share, give them back to your broker, and keep the $20-per-share
profit (minus commission). Of course, if the share price rises
instead of falls, you may have to buy back the shares at a higher
price and suffer the loss. Buying back shares to close out your
short position is called Buy to Cover.
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How to read stock quotes
He is rich or poor according to
what he is,
not according to what he has.
-- Henry Ward Beecher --
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