Online Stock Trading - Entering Orders

Online stock trading has become very popular in recent years. Many online brokers such as Ameritrade and Etrade have made it easy to set up an account with online trading capabilities. Once a trader decides on a trade its time to enter the order. In the past you would talk to a broker who may recommend a certain type of order entry based on current market conditions. Now that you can enter orders directly from a home computer these decisions are yours to make.

There are four basic types of orders: market orders, limit orders, stop orders, and stop-limit orders. Understanding the benefits of these different types of orders can improve your trading results.

Market Orders. A market order is an order to buy or sell a specified number of shares in a stock at the current market price. If the market is open your order is almost certain to be executed within seconds of being entered. Buy orders will be filled at the current ask price and sell orders will be filled at the current bid price. As long as the market is not displaying excessive volatility, the price you get will be very close to the price quote you received just before placing the order. Now that online stock trading is available, market orders can be completed, and a report of the actual fill price sent back to the trader in less than a minute. This makes market orders popular with active traders.

Limit Orders. When placing a limit order you can specify the price at which you want to buy or sell. You can place buy limit orders or sell limit orders. A buy limit order will not be activated until the price of the stock is either at your limit price or below it. A sell limit order will not be activated until the price of the stock is at your limit price or above it.

Stop Orders. A stop order is an order that automatically becomes a market order when a stock reaches a specified price. Stop orders cannot be placed for all stocks. Stop orders are commonly used to protect gains once a trade has moved into positive territory.

Stop-limit order. A stop-limit order allows the trader to have even more control over a stop order. A stop limit order converts to a limit order once the stop price has been hit. The trade will be executed at the limit price or better. However, if there is not enough trading volume at the specified limit price the order may not be filled.