What should you know to place your trade?

New investors are often understandably confusedSome investors deliberately place limit orders in
by how stocks are priced. The bewildering truth isanticipation of a stock's movement, and wait for
that in many cases thereare two prices,daysor weeks for the orders to fill.
mysteriously called the bid and ask. TheOnce you receive confirmation of your
discrepancy results from the fact that stock istransaction, you may not need to do anything for
always being boughtand sold. From the investor'sa while, especially if you plan onholding your stock
viewpoint, the bid is the price when selling, and thefor a long time. When to sell is entirely up to you,
ask is the price when buying.and involves initiating another transaction
Imagine the person you're buying from. Thiswhenyou're ready.
person actually exists in the form of a marketYou can, however, place a sell limit order
maker, a professional from whominvestors buyimmediately after receiving confirmation of a
and sell. A market maker is simply a productpurchase, which specifies aparticular price at which
distributor, and stock is the product. Like anyto sell. For example, if you bought a stock at 50,
other distributor,a market maker earns money byyou can specify a sell limit of 60, meaning
marking up the cost of the product. Since marketyourbroker will automatically sell your shares once
makers buy and sell this product all day, theypricethe stock reaches that price.
it differently depending on whether you areIf your stock has made a nice run-up and you
buying or selling. Obviously, they charge a higherwant to protect part of your profits, you can put
price to buy stock fromthem, and offer a lowera stop loss on your shares,which is a price you
price for stock you want to sell to them.specify underneath where the stock is currently
The difference between the bid and the ask istrading. If it falls to your stop loss price,
called the spread. It is sometimes possible to beatyourbroker will automatically sell your position,
the spread (buy stock lowerthan the ask price, orlocking in some profits and avoiding a possible
sell stock higher than the bid price) by placing afreefall back to where youbought the stock, or
limit order between the two prices. In aworse, falling even further than that. For example,
volatilemarketplace, the prices are always jumpinglet's say you bought a stock at 50, and it's run
around, but they remain tied to each other. Inupto 100. If you're a little anxious about the price
high-volume stocks, the spread issmall, sometimesdropping back to 50 and watching your gains
just 1/16 of a point which is .06evaporate, you can specify astop loss of 90. If
There is a thrilling moment of empowermentthe stock drops to 90, your broker sells your
before you make your first online stock purchase.shares, and you've locked in a profit of $40 a
You are playing in the marketright there alongsideshare. Butif the stock continues its ascent past
the big boys of Wall Street. Before you set the100, then nothing happens, and you enjoy an
wheels in motion by clicking that on-screeneven greater paper profit. Note also thatyou can
button,there are some basic decisions to make.continue to move your stop loss up as the price
Are you using a market order or limit order?ascends, protecting even more of your gains
Market orders direct the brokerage to buy andalong the way. Beforewarned, though, that your
sell stock at prevailing prices assoon as you placestop loss may not get executed exactly at the
your order. Limit orders define the price you'reprice you specify. Extremely volatile stocks
willing to pay or receive. When placing a limitcanplummet past your stop price before your
order, youmust decide whether it should expire ifbroker has a chance to act, or in an overnight
not filled by the time the market closes (a daymove, may open below your stop price.
order, or good for the day), orshould remain openStop losses are not absolute protection, merely
until you manually cancel it (a good till canceledgeneral protection.
order). (Note: Most online investors use limitOver the last decade, personal investing has
ordersas a matter of course, never placing afiltered into our culture and brought Wall Street to
market order into a volatile stock market. LimitMain Street. Informationand trading techniques
orders should be strongly consideredwhen buyingthat were previously only available to the pros are
volatile stocks, and can't hurt when buying innow in the hands of every individual investor.
calmer waters. Market orders, by contrast, canWith all this freedom and empowerment comes
hurt very much ifyour broker executes yourgreat risks as well. Once you discover just how
trade at a price much higher than you expected.)easy it is, using a Web brokercan lead to
Once you place your order and are finished withexcessive trading, and invite rash and compulsive
your celebratory dance about the room, youdecisions. Don't get caught up in hype and let your
should check the orderconfirmation. In the case ofemotionsget the best of you. Do your homework,
market orders, that confirmation should appear onchoose a level of risk that you're comfortable
your screen (or on whatever page to whichwith, and execute your trades wisely.
yourbrokerage directs you) within a minute, orJust remember that online investing is only a tool
even seconds. Limit orders may take longer, asto help you achieve financial security and reach
the market must match yourpredetermined price.your life goals. Good luck!