Investment World Today

When you trade stocks, you can use one of the 5 following types of orders:

1. Market Orders. Use a market order when you want to get in or out of the market, no matter what. It lets you get in or out at the best market price, using the nearest bid or ask (buy price or sell price) at that moment. Do not use a market order in a thinly traded market, especially one that isn’t trading actively, since there may be no one to match your order with, and this leaves you open to dangerous consequences.

One thing to keep in mind with a market order is the fact that you don’t control how much you pay for your stock purchase or sale; the market does. This shortcoming can be met with a limit order.

2. Limit Order. This is an order that executes at a specific price that you set (or better) and can be open for a specific time period. While a limit order will prevent you from buying or selling your stock at a price that you don’t want, if the price is way off base, the order will never execute.

Sometimes your broker will charge a bit more for limit orders, since they can often remain unfilled, and it requires more of their time to monitor and process the order.

3. Stop Orders. A stop order is a market order that only gets activated if a condition is met. For example, the most common stop order is the stop loss, which opens a market sell order if the financial instrument trades at a certain price or lower.

4. Stop-Limit Orders. A stop limit order is a limit order that is activated if a certain condition is met. These are often the riskiest types of orders, since a condition can be met (such as the bottom falling out of a share (e.g. Fannie Mae), but you activate a limit order at a price that is above the market, and never gets filled.

5. Trailing Stops. A trailing stop lets you lock in profits, by monitoring trading, and activating a sell order (or buy order, if you are in a short position) if the item being traded drops off its latest high (or low, in the short position example).

This information is going to come in VERY handy when you’re mastering market stock trading, because the order type will determine how profitable you are.

That is because some order types do better in different market conditions.

When you start off, it is best to do some paper trading, and all the top brokerages let you set up training accounts where you can do online paper trading.

Once you get comfortable with all the order types, and getting your orders entered and filled, and you start to see success, then you can switch over to a cash or margin account and trade for real.

It does not take very long at all to master these five order types, and once you know it, you can apply it for the rest of your trading career, and become a powerful force in the online trading world.

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