Think the stock market looks like a jungle? Do you fear that you won’t have a chance when you finally ante up to buy a stock? The truth is there are ways to name your price and the amount you’re willing to pay for a stock or accept on the sale of shares.
The trick lies in the type of order you place with your broker. Many investors don’t realize that you can specify just when and how to purchase the stock you’ve targeted for your portfolio. That’s important when you calculate returns. A 50 cent move by a $20 stock seems small, 2.5% to be precise, but it looks large when you see the return. For instance, if the stock moves just $2 all year long, you’ve lost out on 25% of your total return. To help ensure you get the price you want, we’ve listed a few of the terms that are best to know when you invest in stocks.
Market order: A market order is an instruction to buy a certain number of shares at the best price currently available. It’s a good idea to check with your broker or with an online service to see what price the stock you want to buy is currently trading at.
Limit order: When you place a limit order, you specify just what is the highest price you’re willing to shell out for shares if you are in the market to buy, and the lowest offer you’d be willing to entertain should you be selling. If the broker can’t meet your price or do better, the order won’t be executed.
Stop order: A stop order helps limit your losses on a stock trade by specifying a price at your beyond which your broker has instructions to buy or sell shares. If you place a stop order for $25 on shares of IBM at a time when Big Blue is fetching $30 a share, the minute the company’s shares reach $25, your broker will purchase them for you.