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Posts Tagged ‘stock buying’

Earliar we discussed different ways you can order or buy (and sell) a stock. We discussed what a market order was and compared it to a limit order. Today we are going to discuss another type of order called a stop order. Bear in mind though that most people buy a stock at the market price and only a small number of people actually place a stop order or a limit order.

A stop order explained

Instead of telling your stock broker that you want to buy a stock, at the market price (market order) or placing a limit order, you can tell your broker that you want to place a stop order. The stock broker will know what you mean.

A stop order instructs the broker to buy or sell the stock at market price once the price passes a certain price point set by you. This price point is called the stop price. For example, you can tell your broker to buy stock XYZ once it falls below $30.

A stop order is different from a limit order because once the stock price passes the stop price, your order becomes a market order.

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I was talking to a colleague about buying stocks and he suggested that I discuss all the different ways you can order a stock. So, I’m going to make this post about how to buy a stock. This is not about how to research your stock. Stock research and what stocks to buy or sell will be discussed another day, allright!

First of all, when you buy a stock or when you are on the phone with your stock broker, he may ask you if you want to place a market order or a limit order or even a stop order. Now, if you are new to stock investing, you might wonder, what? Then your stock broker might tell you the differences between a market order, a limit order or a stop order but still you really need to do your own research to be able to fully understand and give the right  order. So, let’s touch on that subject a bit here. We will only have time to discuss a market order and a limit order. The rest – we will save for another day.

What is a market order?

Most people buy a stock at a market price. When you want to buy a stock at market price, you are giving a market order. When you give a market order, you are paying the market price for the stock. Your purchase is usually immediate and can be executed immediately, especially if you are placing a small order and you are doing it yourself using an online brokerage account, rather than calling your broker. See http://www.investingsmart.info for a review of good discount online brokerage accounts.

What is a limit order?

Now, a more advanced stock trader may not want to pay the current price of the stock but wants to buy that stock at a certain price. He or she can place a limit order which means that when the stock is at a certain price, you will buy or sell that stock. When you place a limit order, your order is not executed immediately. The order will be executed whenever the price of the stock reaches your limit order price that you set.