Trade Orders: How Understanding Them Could Save You Big-Stop Loss, Market, Limit, and Stop Buy

Common Trader Orders Explained

Once you get familiar with the site and find a great stock, you will want to invest in that stock or trade it.

Funding Your Brokerage Account

Once you have picked a brokerage, go to their website and click on the “open a new account” or “sign up” link. This will guide you through the application process, where you will need to provide your social security number, driver’s license, employment status, etc. Make sure you are using a secure server as you will be entering all your private information. At the end, you will create your username and password. Most brokerage firms’ websites should walk you through this process very easily. Once this is done, you will have to fund that account by linking your checking account to your brokerage account and transferring money electronically or writing a check to them. Since each firm may be slightly different, it’s best to contact the brokerage firm if you have any questions about this process. It will take a few days before you see the money appear in your brokerage account, so allow some time for this.

If You’ve Never Traded, Here Are the Basics on Placing a Trade. If you have had a demo account, you should be somewhat familiar with trading and the site’s functionality. Once you fund the account, you will see several tabs. The most common are:

• Account: Summary, Balance, Account holdings/position, Activity, etc.
• Trade: Stocks/options, order status, etc.
• Research: Charts, Screener, Ratings, etc.

Once you play with these options, they should be self-explanatory.

Four Most Common Order Types

1. Market Order: An order to buy or sell a security at the current market price. This type of order guarantees that the order will be executed but does not guarantee the execution price. A market order generally will execute between the current bid (for a sell order) or ask (for a buy order) price. This may be different from the last traded price you see, but it should be close to that. If you like the stock at the current price and want to own it without penny-pinching, this is the order you want to place.
2. Limit Order: An order to buy or sell a security at a specific price. If you submit a limit order to buy a stock for $50, this trade will only get executed at $50 or lower. If the current price of the stock is $50.11, the trade will not be executed. This is an ideal trade when you are not in front of your computer. You can place a limit order and forget about it. If the order gets executed, your broker will most likely email you. You can do the same with a sell order. If you own a stock and you put the order to sell at $50, you will only sell that security at $50 or more.
3. Stop Loss Order: This type of order is usually placed to avoid further loss. It’s the price you usually want to get out at. For example, if you currently own the stock at $113, but you want to get out if the price starts to fall below $100, you would place the order to sell at $100. When the stock reaches this price, the order is executed (the actual price you sell may be a few cents above or below due to market fluctuation). As the name implies, you are stopping further loss.
4. Stop Buy Order: An order that is placed at a stop price above the current market price. This order is generally placed when the stock is fluctuating at a certain price level but has not had a breakthrough. However, once you know there is a breakthrough, you anticipate the stock going much higher. For example, if the stock is fluctuating between $40-$50, but you expect it to start an uptrend, you might put a stop buy at $52. If the stock starts to cross up and above $52, your order will get executed.