Buying and selling stocks

Each time you buy or sell a stock, you are charged a commission. You should always factor this in to your trading decisions to ensure that your trades are as profitable as possible.

When you have decided that you want to buy or sell a stock, there are different ways to enter your order.

Order types

When you enter an order to buy or sell a stock, you have the option of choosing from various order types including a market order, limit order, or stop order. Since market participants are willing to buy and sell certain stocks at different prices, it’s important to know how these order types work.

Stop and limit orders let you make sure that trades you want to make can be executed even if you’re not available to keep an eye on your account. This is especially valuable for preventing sudden losses or taking profit on sudden spikes in a stock’s price.

Market orders

When you decide to enter a market order, your order will be executed at the best price available for the number of shares you are buying or selling.

If a stock’s trading volume is not very high, and the spread between the bid and the ask price is wide, market orders can sometimes cause you to pay more for a stock than you anticipated when buying, or to receive a lower price than you wanted when you are selling. To avoid this, you can use limit and stop orders.

Limit orders

If you have made a decision about the highest price you’re willing to pay for a stock, or you want to sell it only after it reaches a certain price, then you can use a limit order. If the stock reaches this price limit, your order becomes a market order and is executed. For example, if you want to buy a stock that’s trading at $1.10 per share, but you are not willing to pay more than $1.00 per share, you can enter a buy order as a limit order. You can then set the limit price to $1.00. Your order will only be executed if the stock’s price drops to $1.00 or less. If you want to sell a stock, but you are waiting for the price to rise to a certain level before you sell it, then you can enter a sell order as a limit order, specifying a limit price at which your order will be triggered.

Stop orders

If you want to make sure that you exit a position in a stock if it drops below a certain level to prevent a loss, you can use a stop order. Stop orders allow you to specify the price at which you want the order triggered. Let’s say you are only willing to take a 10% loss on a stock that you bought at $1.00 per share. By entering a sell order as a stop order, you can specify that the order will only be triggered if the stock reaches the stop price (in this case, $0.90). If that happens, the order becomes a market order and is executed.