How to set up Stock Orders
Once you decide on the stock you want to trade, you will need to set up an order online, through your brokerage company. Placing stock orders can get confusing. To help, I will discuss the different type of orders with illustrations so as to make it clear.
1. Market Order - Market Orders are the easiest and perhaps the simplest stock orders to place. A Market order simply tells your broker that when the order executes, you wish to buy or sell stock at the current market price.
So if you really want to get into or out of a stock or a position (this is the common term),placing this order will get you into the stock or out of the stock at whatever market price when the order goes to the market.
Is it a good option to use? It depends.. Make sure that you have done your research!
2. Limit Order - Limit Orders allow you to determine at what price you will buy or sell a stock.
Let's say you want to buy stock XYZ. At the end of the day it was trading at $23. You do your research and you decide that this is a good buy for you.
But, you want to make sure that you only enter this position on an upward trend. So you set a Limit Order for say $23.7 or $24 (based on your trading strategy). In effect you are telling your broker that when this stock begins to trend up the next day and it reaches $23.7 - BUY!
3. Stop Order - Stop Orders allow you to protect yourself from a volatile market. When you place a stop order you are telling the broker that when your position reaches a certain price say $20, your order now becomes a market order and should executes at that price in the market.
4. Stop Limit order - Stop Limit Orders are a bit like Stop Orders. The only difference is what happens when the position reaches the price you set.
Instead of this order becoming a market order it becomes a limit order and will only execute based on the conditions that have been set.
This is a great stock order strategy to use when you have a target price in mind on a trade. I use this strategy every time I place an order.
For example - Let's say I buy XYZ stock at $23.7. I set a Stop Order for $22.5 and a Stop Limit Order for $25.7.
This is what in essence I am telling the broker- when the stock I bought goes down to $22.5 sell it as a market order. When the stock goes up to $25.7 sell it. This is the minimum target gain price that I am willing to sell the stock at.
5. Contingency Orders allows you to buy or sell a given stock based on a certain conditions.
6. Trailing Stop - Trailing stop orders are a safe way to protect yourself when you set up an order.
For example - Let's say I purchase a stock for $23.7 and you put a trailing stop of $2.
I am telling the broker that if the stock goes up the stop order should always trail the stock price by $2.
So- at a stock price of $25.7, the trailing stop price would be $23.7..
Most important thing to remember? Stock Orders are easy!
Plan your trading strategy!
Determine the order type you will use.