Bid and Ask Price
- Ask Price: Is the lowest price that a stock is being offered for sale. Also called the "offer price". The ask price is higher than the bid price.
- Bid Price: Highest price at which a buyer of the stock is willing to pay for the stock, from the seller. The bid price is lower than the ask price.
- When buying or selling a stock, you will want to decide on what type of stock order to use. Each type of stock order has a purpose, ask your brokerage firm for a list and description of each type before placing a stock order, this way a lot of potential problems or confusion can be avoided.
Market Order
The market order can be used for buying or selling a stock, and is the simplest one. The order will be executed at or very near the price quoted when the order is entered, unless the stock price is moving rapidly. The price can change rapidly if the order is for a fast moving or thinly traded or volatile stock. Use caution when placing this type of order. You can end up paying a lot more when buying the stock or selling for a lot less when selling the stock.
Limit Order
A limit order is used to buy or sell a stock at a specific price. Example a stock has an asking price of $12.55 and you are willing to pay $12.20 a share, to buy the stock. Your order will not be filled untill the asking price drops to $12.20, or the seller is willing to sell the stock at $12.20, then depending on how many or where your order was placed. There may be other limit orders, placed before yours at the same price, they will be filled in the order received untill all the shares offered for sale are sold. There is a chance your order may not be filled.
Stop Loss Order
A stop loss order is used when you may want to protect your profits, or sell at a specified price. Once a stock trades at (or below) the "stop loss order" price, it becomes a market order. Example a stock you own was purchased at $11.00 and is trading at ask price of $12.50 and a bid price of $12.35. In the event that you placed a "stop loss order" at a price which you decided was the time to sell say $12.00. During the trading day the stock was to drop to a price which you set in your
"stop loss order" $12.00 the order would be executed to start selling at $12.00 a share. The danger here is in a fast moving stock going down the price can also go down rapidly, thereby starting to sell your stock at $12.00 and continuing selling even lower. There is another "order which can be used the
"lower limit order", to stop the selling at a lower limit.
Lower Limit Order
A
lower limit order is used, when the stock you want to sell has started selling, because of your "stop loss order" which you placed and you want to stop the selling of the stock at a lower price which you specify. This price is lower than your
"stop loss order". Using the above example you placed a "stop loss order" at $12.00, this executed the selling, in the event the stock price was to drop to $11.65 a price you do not want to sell at, this is where you set your lower limit at $11.65, thereby stopping the selling. This could be a price specified for the stock, at which point you want to stop the selling feeling the stock has value and want to continue owning what is not sold.
High Risk Orders
Buying on margin and short selling are very risky orders. To be used by experienced investors not new investors.
Buying On Margin
Buying on margin is buying a stock, but just paying for part of it. To do this you obtain a loan from your broker, paying interest on the loan. Then hope the stock doesn't go down. If the stock goes down you will get a phone call asking you to cover the margin with more money to maintain your position. In the event you don't have the money, you must sell the stock, and accept the loss. Leave this order to the professionals, extremely risky!
Short Selling
Short selling is also extremely risky, involving selling the stock before you buy it. Example you buy 500 shares from your broker, sell them on the market, then wait until the stock drops. Then you cover the short position buying the 500 shares at a lower price. The borrowed shares are then given back to your broker, then you keep the amount by which the stock dropped. This is why you hope the stock goes down and not up. You would lose in the event the stock went up, leave this order to the professionals.
Lot Order
A lot order is a order of 100 shares, in sizes of 100s. Example 100,200,300,500,1100 and so on.
Partial Lot Order
A partial lot order or (odd lot order) is when the order will be less than round lots of hundreds. Round lots are example 100,200,300 or more. Odd lot orders or partial lot orders example 50,125,250,375,1050 so on. Check with your broker when in confusion. There may also be an extra fee for purchasing or selling odd lot or partial lot orders, check with your broker about the fee's which could apply.
Conditional Orders
When you place an order to buy stock or sell stock, what conditions do you want to apply to your order?
Day Order
When you place a day order to buy or sell stock, it remains valid for the day when the order it was placed. At the end of the trading day if the order is not executed, it is cancelled automatically. Example you placed an order to buy 500 shares at $12.00, but there was only 100 shares offered for sale, in this situation you will buying 100 shares at $12.00. In the event that your order was only partially filled you will need to put in another order the following day. This would involve placing another order and cost of a commission.
Good Untill Cancelled Order
The "good untill cancelled order" is good untill the date you specify. This will allow more time for your buy or sell order for stocks to be filled. In this way avoiding have to place another order and pay extra commission. Note: It is your responsibility to keep track of the date when the "good until cancelled order" is cancelled! The problem could be if you forget about the "order", and it is executed, can you afford to cover the transaction. Be real careful about the use of the "good untill cancelled order", once it is placed and or executed it is your responsibility.
All Or None Order
The "all or none order" is used when you want to buy all of the order placed, not a partial fill. Example You place an order to buy 500 shares at $12.50, but there are only 400 shares for sale, then your order will not be executed or filled.