Today I’ll discuss how to enter an order for a stock and go over some of the terms. This is part of a series on how to start investing. The start of this series: https://smallivy.wordpress.com/2011/01/10/the-best-investing-strategy-for-beginners-part-1-choosing-a-broker/
The most basic kind of order is a market order. In a market order the investor simply specifies whether it is a buy or a sale, the number of shares, and in which stock he is interested. For example, one would place a market order to buy 100 shares of IBM by saying: “Buy 100 shares of IBM at the market”. The broker would then enter the trade into the system and put the investor in line to buy the shares at the market. Once it was the investor’s turn he would get whatever price at which someone was willing to sell the shares to him. For a heavily traded stock like IBM this would happen in a matter of a split second and one could be assured of getting a price close to the last price at which the stock traded.
If one wanted to be sure to get a stock at or below a certain price, or one was trading a thinly traded stock and putting in a market order might result in buying at a high price, one would enter a limit order. In a limit order, one adds a limiting price to the trade. For example, one could enter the previous order as, “Buy 100 shares of IBM at $99.20 or better.” In this case the stock would not be bought until there was someone willing to sell the shares for $99.20 or less. Also, if there were other people wanting to buy the shares at $99.20, one would need to wait one’s turn before getting the shares. (For this reason, it is a good idea to pick odd amounts for limit orders like $99.27 instead of $99.25 or $99.00 so as to be first in line – think of the bidding strategies from the Price is Right.)
Limit orders often take a while to execute since the price must reach the level of the limit. Normally an order would be cancelled at the end of the day if the order were not executed (“filled” in Wall Street parlance). One would then need to put the order in the next day again. To avoid the hassle, people often use the option, “Good ‘Til Cancelled,” or “GTC.” For example, “Buy 100 shares of IBM at $99.27, Good ‘Til Cancelled.” In that case the order would remain in place until it filled, 30 days had passed, or the investor cancelled the order.
Having covered the basic types of orders, in the next post I’ll go into what to do after buying the first shares.
To ask a question, email firstname.lastname@example.org or leave the question in a comment.
Follow on Twitter to get news about new articles. @SmallIvy_SI
Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing