When you go to buy your first stock, you may be a little confused about the terms involved. Especially the stock market order types. These are simple terms once you understand them and they may be highly beneficial to your stock portfolio.
The main terms you need to know initially are the terms for stock market order types. These are the basic ways you can order a stock.
Buy/Sell Market Order
Most of the terms are fairly self-explanatory and a market order is the most simple. A market order means you purchase X amount of shares for whatever the current market price is at. That’s it! So far, so good, right?
Buy/Sell Limit Order
A limit is a way to protect yourself.
You can set a sell limit order to sell your stock only at a certain price or higher. Or you can set a buy limit order to buy your stock only at a certain price or lower. Setting a limit is usually better than buying or selling at market value, because the market can change drastically and suddenly.
You can set a limit for the day only or you set it as “good until canceled”, which usually expires after 30 days if the price wasn’t met. If your price wasn’t met, the purchase is cancelled. No harm, no foul.
Buy/Sell Stop Order
A stop order is an order that you can set to buy or sell a stock once it reaches a certain price that you specify. A stop order turns into a market order once the stop price is reached. A buy stock order is set at a price above the current market value and a sell stop order is set at a price below the current market value. This is a way to protect yourself against losing too much on a stock.
Buy/Sell Stop-Limit Order
As it sounds, this is a combination of a stop order and a limit order. Once the price of a stock reaches a specified price, it turns into a limit order.
This way you can use a stop order, but control the price that you buy or sell at. Many traders use this type of order, as well as regular stop orders, for extremely high-risk stocks, such as penny stocks.
What You Need to Know
If you are planning on being a day-trader as opposed to an investor, then it may help you to do more research on stock order types, but for the investor who plans to hold their stocks for a very long time, you will not have as much use for these tools. Trading and especially day-trading can be a very risky and dangerous business, but if you choose to take that path, please do your research on all types of stock orders.