Increasing Profits with Simple Order Specification Techniques

Traditional brokers recommend the order specifications for your stock transactions and confirm that your transactions were completed. (An order is a request to buy or sell a specified amount of a certain security or commodity at a specified price or at the market price.) Specifying security execution orders is one of the expert services that brokers use to justify their fees.

Order specifications define how your request is completed. One type of order specification is called a day order. Day orders are good only on the day you place the order.

Another type of order is the Good Till Canceled (GTC) order. The GTC order is open until it’s executed or canceled. For example, an investor wants to buy a certain company’s shares, but not until the shares are a few dollars cheaper. The investor specifies a GTC order and determines when the order will expire. If the company’s shares reach the predetermined limit (today, tomorrow, next year, or next decade), the order is filled. Trading online means that you’re now in charge of specifying your stock order. Knowing how to designate the terms of your order can increase your chances of execution at the price you want. As you look over your online order form, you’ll notice different ways of specifying how the order should be executed. In the past, your traditional broker decided which approach was best. With online trading, you select the method you feel is best. Here are four of the more popular ways to specify your stock order:

Limit orders: Orders in which buyers or sellers specify the price at which they’re willing to buy or sell. For sell orders, the limit specified is the minimum price at which the investor is willing to sell. For buy orders, the limit is the maximum price that the investor is willing to pay.

Market orders: Any order (buy or sell) to be executed immediately at the best price available. In other words, the investor wants to buy or sell a stated number of shares at the best price at the time the order is placed.

Stop orders: An order to buy at a price above or sell at a price below the current market. This type of order gives investors more control than a market order, which buys or sells a security at any price. Stop orders limit the investor’s loss (or locks in the investor’s profit).

Stop-limit orders: After a security reaches the investor’s predetermined price, the order is activated. The order can be executed only at the set price or better, so the order may not be completed.

You may want to use a limit order when purchasing or selling odd lots (less than 100 shares of any one stock). This type of order can increase your chances of getting filled at your price. Odd lots rarely get the best price because they must be bundled with other orders. The Investing Online Resource Center offers many resources for beginning online investors. One of my favorites is the handy online trading simulation at www.investingonline.org/isc/index.html. This simulation is a terrific risk-free way to find out what it’s like to invest online.