If you are trading in the financial markets, either stocks, options, bonds, commodities, or foreign exchange, you need to master these five order types. Here they are, and how you should use them:
1. A market order. Market orders are orders to buy stock at whatever price is available. In a fast moving market, these get filled (sold to you) at pretty much the price you expect.
It is important to remember that you do not control the price you will buy at, but normally you have a pretty good idea. Avoid this kind of order when there are few buyers and sellers.
2. A limit order. Limit orders are orders to buy or sell at a particular price. This is good if you really need to get the price you specify, or if the market is choppy - moving up and down too fast to keep up with, but you don't want to get caught on a sudden change in market direction.
It's important to note that some brokers charge more for limit orders. Why? Simple because no execution means no commission.
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. A stop-limit order. This is just like the stop order, but with a set price. For example, you set a stop limit sell on IBM at 100. IBM drops to 100, and your "sell at 100" order is activated, but if IBM drops to 99 and continues to drop, your order may never be 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.
Knowing these order types will be very important as you learn to master trading, since each one has significant benefits in certain 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 feel confident about your knowledge of each order type, and when to use them, you can switch over to a real trading account and know you have the skills to use the right order types effectively.
It does not take long before you will be on par with the professional traders, who trade with the precise order type with every trade they make. And remember, these order types work in all markets, including shares, options, commodities and foreign exchange markets.
About the Author:
No longer do you need to be confused by online stock trading. Discover winning stock trading tips from a professional trading system, delivered to your inbox.
No comments:
Post a Comment