Finance Spirit

Stock market orders: As increasingly investors start to trade online to take advantage of the reduced transaction costs & the convenience, it is important for them to be conversant with the methodology of placing buy & sell orders with their brokers. You can, in fact, use a variety of buy & sell orders so that you can take more control over the transaction & not be entirely at the mercy of the broker. Some types of orders exercise control over the transaction by price while others control it by time.

Here is a rundown on the various types of orders that you can use with your broker.

Market order: this is the quickest & the simplest technique of placing an order & getting it fulfilled. In a market order, you instruct the broker to buy or sell at the prevailing price at the moment of execution. If you are following the market, do not expect to get the exact price that used the on-screen but you can expect a price that is close unless your stock is hugely volatile. Recall that there is no guarantee of any price & you will basically had to trust the broker to do his best. This is also the cheapest type of order in terms of transaction cost.

Limit order: the limit order is an order in which you instruct the broker to buy or to sell at a specific price. If your price is not available, the transaction won’t go through. You therefore have control over the price at which you will enter or exit a position. Recall to check with your broker what he charges to execute limit orders. If the charge is higher than you would like, & your stock is not volatile, you may be better off placing a market order.

Stop loss order: stop losses are standard risk management practices that prevent you from taking sizable losses on open-ended positions. You predetermine what losses you can live with on a particular stock &, if that price is reached, you sell straightaway & crystallise your losses. Recall that you will lose a number of the time at least & the trading discipline enforced by a stoploss means that you can limit your losses to what you are comfortable with. You will normally place a stoploss order by giving the broker a price trigger that would be below the prevailing market price. The moment the stock drops to your stoploss price, your order becomes a market order which the broker will execute instantly.

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