Are you want to put yourself in trading stocks on line. So step one, first get aligned with an online brokerage. After, you get signed up, may be you are already signed up, you’re going have a bunch of different choices for orders, in terms of how to buy and how to sell. So we’re just going to take it one by one and, hopefully, when you get through it all, you’re want to understand what all those little drop down options mean, when you click that little arrow and you see a bunch of choices. Maybe there’s just boxes you select or whatever, but regardless, hopefully, you’ve seen all of these because they are very commonplace.
Important Steps to Trade
Just for argument’s sake, we’re going to talk about a stock that is currently trading at $25. So $25, current price of stock. We’ll just call it ABC. Now, the first type of order you may see is what we call a market order. So, what does market order mean, if you select that option? That means that I just want it and, not only do I want ABC, I want it at any price. It does not even matter to me, I just want into the stock. I want to own shares. I want to buy it, not in a few minutes, right now. So market is just, saying I want it now.
And you’re going to pay whatever price the market gives you. So if this happens to fluctuate up to, let’s just say, $25.02. So if that price goes up$25.02 for whatever reason, maybe like a split second before you click the buy button and it goes up to $25.02,it doesn’t matter, you’re getting in at $25.02. Let’s just say it drops to $24.97 right before you buy. It doesn’t matter, you’re getting in. You want it now so it’s going to give you whatever the market has the current price at. So that is what a market order is. Next type of order, a limit.
And all strategies are different but a limit is, more times than not, the order that you want to be using because market orders, especially in penny stocks or illiquid markets, can get you in quite a bit of trouble. But, also at the same time, market orders do have their place in the market. So I don’t wanna say this is like a black hole or anything. They have their time and place. But a limit order is essentially saying, I want it but. So what is the but? The but is saying, I really do want that but I’m only willing to pay a certain price for it. So, again, if the stock is trading at $25 and, you’re like, I do want into ABC, but I don’t want in at $25, I’m only willing to pay $24.90.
Different Strategies in Trading
You would select limit order and, then, when you select limit, your broker is going to ask you, okay, well, what is the but, meaning what price are you willing to pay? So, in our example here, you would put in a limit order for $24.90. All that means is, you’re not going to get any shares of this, unless the price hits $24.90. So, if the price drops down, it hits $24.91, you didn’t get any shares. If the price goes up to $25.50,you didn’t get any shares. You’re only willing to pay $24.90. So you put a limit on the order, that’s what a limit order is. The next type of order, very, very important type. Stop-loss. Now, the thing here is, stop-loss only pertains to you if you’ve gotten in.
So either this or this order type has already taken place in order for a stop loss order to be relevant to you. And the stop loss is saying, I want out. Now, the name’s a little deceiving cuz it implies that maybe you’re stopping a loss. But, in other situations, especially when you get more advanced trading, a stop-loss can still take you out of a position. But it’s not really stopping a loss you would already be making money. So it’s not like this pertains to only losing trades. This is just a way, again, of saying, I want out of the trade. That could be a losing trade. It could already be a profitable trade.
But you just want out. Now, within this family, there are two types. And, hopefully, these both kind a sound familiar. There is a market stop. And there is a limit stop. Market is saying, I want out, now. So it is just going get you out of the trade whenever. So let’s say you get in right here at $25, and you’re like, you know what, I only want to risk 10 cents. So you could put in a market at $24. 90 and, if the price goes down there, it hits $24. 90, bam, your broker is going to sell your shares and you’re get out.
But market means, no matter what, so if the price really starts to go down fast, maybe by the time all the little computer algorithms do their thing, the price is at $24. Well, because you are doing a market, meaning you want out now, it’s still going to just sell you and get you out at $24.85. Sure, you said $24.90 but, because it’s a market, that’s not a guarantee. The only guarantee is your broker will get you out of the position. On the flip side, so we’ll go with this$24.90, you want out there, but if you choose limit, you’re saying, I want out but I’m only willing to take a loss of up to 10 cents. Meaning if the price does one of these numbers, where it’s just moving so fast that it just, essentially, goes down through your order, which is possible depending on how fast things are moving.
How the Market Works
That’s just the way the market works. But, let’s just say, the price just starts to collapse, like bad news or something comes up, and the price just, whoosh, you know the toilet flush, down it goes. Because a lot of other people are going to try at $24.90, you just may not have any shares there or you may not be able to get out. But the problem here is, well, you’re only willing to sell for $24.90. So what the price hits$24.85, you’re not selling. Price hits $24.50, you’re not selling. Price hits $24, you’re not selling because you said, well, I’m only willing to sell for $24.90. Sure, it can cost you a little bit more, because maybe you don’t quite get out, when you thought you do. But at least you get out. So, again, all orders have their time and place.