| Buying stocks appears fairly straightforward at | | | | (showing the price you paid for the stock) is |
| first glance, however there are several points you | | | | delayed significantly. This makes it extremely |
| should consider before blinding placing your first | | | | difficult to judge what a "fair and accurate" price |
| trade to buy or sell a stock. Following is a brief | | | | is and/or when your order should have been |
| outline of points to consider.First and foremost, | | | | executed. It also opens you up to possible foul |
| you need to understand that stocks are sold to | | | | play when it comes to how your order is |
| you at one price and bought back at a slightly | | | | processed and/or handled. As such, unless you |
| lower price. This difference is called "the spread". | | | | are dealing with a fairly orderly market, we |
| And while the spread has generally decreased | | | | suggest using what are called limit order.A limit |
| over the years, you are still taking a hit when you | | | | order works just like you might think. It is an |
| purchase a stock (assuming you should want to | | | | order with a limit price attached to its execution. |
| turn around and sell right away). The bid price is | | | | When you place your order, you specify a limit to |
| the price the market will pay for a stock when | | | | the price you'll pay. While limit orders are usually |
| you go to sell it, while the ask price is the price | | | | executed after market orders, they do provide a |
| quoted to those who wish to purchase the stock | | | | higher level of protection against over paying, etc. |
| from the market. Nothing says you cannot try to | | | | Additionally, we feel they are a fine method to |
| buy at the bid and sell at the ask, but this will | | | | use when trying to take up a position at a lower |
| generally delay your execution.On the topic of bid | | | | than the market price. You should keep in mind, |
| and ask prices, you should note that there is a | | | | however, there are two types of limit orders, a |
| corresponding "size" which relates to how deep | | | | stop limit as well as a market limit. A stop limit |
| the orders run on the bid and/or ask size at any | | | | order is an order which becomes a stop (such as |
| given price. As an example, you may have 100 | | | | a stop loss) once the price is reached. Keep in |
| people trying to buy a stock at a specific price, | | | | mind with this sort of order, the market can pass |
| while only 10 are trying to sell. This directly | | | | right by you, where as with a normal limit order |
| impacts how much stock is available at any given | | | | (which basically turns into a market order once |
| bid or ask price. Once the orders to buy or sell a | | | | hit) you stand a better chance for not only |
| stock at a given price are filled and/or canceled, | | | | execution, but seeing an improvement on your |
| the price adjusts according to the remaining | | | | execution price. This is because once your market |
| orders - either at higher or lower prices. If there | | | | order is set, the market may move in your favor |
| is a 'void' of orders at any given level in the | | | | during execution, but you will never pay more |
| market, a stock is said to "free fall" or "gap" to | | | | than your limit. Limit, stop and market orders |
| wherever there are buyers or sellers. Keep in | | | | apply directly to both buying and selling of |
| mind as well, how this area of pricing is handled is | | | | stocks.Sometimes being in cash gives you the |
| sometimes dependent on where your stock | | | | best strategic position from which to trade, and |
| trades. On the NYSE, for example, bid and ask | | | | this is often an overlooked fact of daytrading. |
| sizes are displayed by a market specialist whose | | | | Remember, you can't take advantage of market |
| job it is to ensure an orderly market. However, | | | | dips if you are already in the market! In my view, |
| on the Nasdaq, multiple market makers my line up | | | | it's better to be out of the market more for day |
| at different prices advertising to the market to | | | | trading than in the market. This will allow you to |
| buy or sell at different levels. Detailed information | | | | get in and out with profits quickly and be on the |
| regarding where a specific market maker | | | | sidelines should dips occur. It also drastically |
| (generally a large brokerage firm) will buy or sell a | | | | reduces the risk to your capital as compared to |
| given stock is provided via Level II data.Next, you | | | | just sitting in stocks that aren't moving and/or |
| should understand there are several different | | | | holding trades for excessively long periods of |
| types of orders that can be placed to buy or sell | | | | time. Try to be out of the market more with |
| a stock. The most common is called a "market | | | | your trades and in the market more with your |
| order". This means buy or sell at the market | | | | investments (as long as they are good |
| price. However, keep in mind once this type of | | | | investments of course). |
| order is placed, you are nearly powerless in your | | | | Above all else one of the most important and |
| control of the price paid should the market make | | | | most widely over looked aspects of being a |
| a sudden move. In a very active market, you can | | | | successful day trader is working on your personal |
| also run into situations where your confirmation | | | | life and how you conduct yourself. |