Placing Trades With Your Stockbroker
After you pick a stockbroker, the next step is to start buying financial instruments. You can choose between mutual funds, bonds, stocks, and many more. Still, before purchasing any of them, it is vital to learn more about the twelve trades you can make.
The most common method of buying stocks is by placing a market order. These orders have the lowest commission because they do not require any complicated resources in order to be executed.
A market order means that you will agree to any stock price. For example, you can call your broker and arrange an order for 100 shares of a particular company. After a few seconds, the order comes through. There could be a little difference between the prices, but it depends on how much time went by since you first placed the order.
Unlike market orders, your broker cannot guarantee you that he will execute the limit order. In addition, limit orders are not only a fantastic market tool, but they also offer valuable protection against failure.
When you place a limit order, you can determine the maximum amount you would pay for a stock. Or, you could define the minimum amount you would accept when selling a stock.
You can use the all-or-none order to buy multiple shares in one go. However, to avoid disturbing the market, you have to use them in combination with a limit order.
Furthermore, your all-or-none order will not be executed if there aren’t enough shares. There should be at least 300 of them. Moreover, the broker will place your order after he executes other regular orders.
Stop Order / Stop Limit Orders
Known also as stop-loss orders, you can make them in order to lock in the profits from your desired trades.
A stop order converts to a market order once it reaches the predetermined price. In contrast, a stop loss order turns into a limit order.
Selling Short / Buy To Cover Orders
Short selling can lead to many losses, but it could also help you profit when the stock price goes down.
The main idea behind it is that you can profit from the overvaluation of a bad company. For example, that company could have bad management and many other issues. You think the price will fall, and because of that, you make a short sell order for a 1,000 shares.
However, you borrow the stocks from your broker and sell them short. That way, if the price goes down, you can buy them back and collect the difference.
Day and GTC Orders
Orders have an expiration date. For example, day orders last until the end of that particular day. Then they are canceled.
In contrast, GTC orders remain open unless you cancel them, or until they are filled. In addition, they can also expire after 60 calendar days.
Extended Hours Trading
The market can allow you to trade between 8 PM and 8 AM – when it is officially closed. However, this can be quite risky because the prices can become seriously affected by the volatility of the market. The prices will not be the same as the ones you would pay during regular market hours.
Trailing Stop Orders
These types of orders help you protect your current profits. For example, let’s say you have a 100 shares and you paid each one of them $50. Now, they are worth $55. You can place a trailing stop order with your broker to sell the shares if they fall under a certain value.
If that happens, the order converts to a market order automatically.
These work similarly to the previous one, but there is one difference. You can also add an upper sell limit.
That way, you will have more time to hold on to the stock. In addition, most stocks are naturally unpredictable if the market is somewhat volatile at the moment. Therefore, bracketed orders are a better approach if you want to protect your assets.
You don’t have to be afraid of stock trading. By reading this small guide, you are already on your way to becoming a successful trader.
Use this summary as a cheat sheet for your future stock trading career:
- Market orders: they have a guaranteed execution, but you have to accept any price.
- Limit orders: the price is guaranteed, but it might not get executed.
- All-or-none orders: there should be enough shares so that you could buy them all at once.
- Stop order: transforms to a market order when the stock reaches a certain price point.
- Stop loss order: same as the stop order, but it converts to a limit order.
- Day orders: canceled after the trading day ends.
- GTC orders: they last until you cancel them or until your broker fulfills them. They also expire after 60 calendar days.
- Trailing stop orders: they allow you to lock-in profits and benefit from stock price surges.
- Bracketed orders: same as the previous one, but they require an upper limit price point.