How Are Stocks Bought And Sold

Stock trading online can be a bit intimidating for a beginner. By reading this article I will hopefully answer the question, “How are stocks bought and sold online”.

Go Long or Go Short

To tell your broker whether you want to go long (your betting the price goes up) or go short (betting the price goes down) you will need to select the appropriate action. Use Buy (when you want to go long) and Sell (to close your long position in a stock).

If you think the price of a stock is going down, you use Sell Short (sell your brokers shares) and Buy To Cover (when you are buying your brokers shares back in order to close this position).

In addition to the type of trade you are placing you’ll need to also specify the stock symbol, and the number of shares you wish to trade. Your broker will also want to know WHEN you want the trade placed. This all has to do with getting the best price for your stock. There are some advanced moves here but for our purposes, I’ll limit myself to the three basic types of orders: Market, Limit, and Stop.

Choose The Correct Order Type

You use a Market Order when you want your trade executed immediately at whatever the going rate is. I recommend you don’t use this for stock options. It can be useful for buying stocks however. I use this when a stock is dropping fast and I need to exit quickly. Market Order also comes in handy when the stock is shooting up in price and you need to move fast.

I use Limit Order mostly with options but it comes in handy for stocks too. Suppose you are watching a stock and you’ve noticed every time it gets to $10 it drops in price. When it hits $6, it usually finds support and rises in price. Many investors have jobs and families so they are unable to watch a stock all day long for those buy and sell points. To solve this problem you can place a Limit Order to buy the stock if the price hits $6. Set another Limit Order (after you have bought the stock) to sell the stock at $10. You just set your order and forget it. The trade will be executed immediately whenever the stock hits the prices you specified.

The third type of order is a Stop Order. If you own a stock and you want to limit your loss on the stock you can do so with a Stop Order. For example, you buy XYZ at $10 and you don’t want to lose more than 10% on the stock should it go in the wrong direction. To do this you use a Stop Order. You set the Stop Order to execute a sell of your stock should the price drop to $9 (a 10% loss).

Specify The Length Of Your Order

If you selected to trade a Limit Order or a Stop Order, your broker will want to know the duration of your order. Here you have two choices, Good Till Cancelled and Day Order.

Day Order simply means that if the trade has not been executed by the end of the trading day it is automatically cancelled. If you want your execution orders to last more than one day, use Good Till Cancelled. These orders remain in effect until you manually cancel them.

Now that you know how stocks are bought and sold online, I would like to invite you to trade with me. I’ll email you when to place your orders (and on what) and when to exit. Please CLICK HERE for more information.

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