Executing Stock Trades
As an individual investor in the stock market, your first concern is how to go about executing a stock trade; fortunately, it's usually as simple as picking up the phone or clicking the mouse. For example, if you trade through a broker, you can simply call and place an order for 100 shares of IBM. Almost immediately, you'll get confirmation that your order has been filled and that you now own stock in IBM. When you make your own online trades, you simply follow the point-and-click instructions on the brokerage website to execute your trade, and a confirmation should follow almost immediately.
Get an idea of the fifty-two-week highs and lows of the stocks you're looking to purchase and use this to set target prices for when to sell. As the stock approaches the target price you can start selling off shares, and then gauge to what degree you believe it might pass the target. Don't use the target as an absolute figure but as a barometer.
Of course, things can get a little more complicated, as there are several different types of stock orders. Your options include: a market order (like the IBM example), a limit order, a stop/limit order, or a stop/loss order. You can also determine the length of time your order is in effect, so that it is good for the specific day it is placed, another specific time period (like a week or a month), or good til canceled (GTC).
Market Order
When you want to buy or sell a stock at the current market price, you place a market order. This means you want to buy or sell a stock at whatever price the stock is trading for when your order reaches the floor. In other words, you're buying or selling a given stock at the going rate. Depending on whether you're buying or selling, the market price may differ. The broker's terms for these prices are the bid (buy) or ask (sell), and the difference between these two prices is known as the spread. For example, IBM's bid price may be $114.25 (usually notated as 65 ¼), while its asking price is $114.50 (or 65½). In this case, the spread is one quarter.
Unlike IBM, securities that are thinly (infrequently) traded often have bigger spreads. Dealers in a security generally keep a large part of the spread in exchange for playing the role of middleman. Like all middlemen, dealers are in the business of selling goods at a higher price than what they initially paid. Stock prices, especially in heavily traded stock, can change in just seconds. By the time your order is filled with a market order, you might find a slight difference in the price that you were quoted.
Limit Order
Limit orders are placed if you don't want to purchase stock for more or sell a stock for less than a predetermined price. A limit order, like other types of orders, can be placed as a day order or as a GTC order. Your limit order may not fill with either one of these two options; however, you have a greater chance of your order being filled with a GTC order since it can remain open for a longer period of time.
Limit Order Buy
If you want to buy a stock for a specified price, you can place a limit order. Let's say
Limit Order Sell
If you own
Stop Order
Stop orders (also called stop loss orders) are crucial for investors who are concerned about a stock's price falling too low. Using either a fixed dollar amount or a percentage, the investor sets a stop point; that is, a price at which the stock is automatically put up for sale. This is a good way to help lock in profits or prevent excessive losses, and it also takes the emotion out of making critical trading decisions. With a stop order, once your stock reaches your stop point, it becomes a market order.
Company size, or market capitalization, is an important consideration when making an investment. Remember: To determine a company's market capitalization, multiply the number of outstanding shares of stock by the price per share. If a company's stock is trading for $25 per share and there are 10 million shares outstanding, the company's market capitalization is $250 million. Many blue-chip companies have market capitalization in the billions.
Stop Order Buy
You can also place a stop order to buy. Let's say Intel is currently selling at $19 per share. If the price climbs to $22, you want to buy because you think the price will continue to rise. Therefore, you put in a stop order to buy at $22. Once Intel hits $22 per share, your stop order automatically becomes a market order. Your order might be filled at your stop point of $22. However, since the stop order becomes a market order at your set stop point, you might also end up paying more or less for the stock. The price might rise to $22.50, for instance, before your order is filled. Conversely, the stock might hit $22 and then drop; you might end up buying it for $21.50.
Stop Order Sell
Let's say you bought that Intel stock at $22 per share. You can now place a stop order to sell if the stock price drops to $20. Once the stock hits your set stop point, your stop order to sell becomes a market order. Again, that means your order might end up being filled at a higher or lower price, depending on the market price at the time your order is filled.
