How to Buy Stock
Dec 8th, 2009
The easiest way to learn how to buy stock is to open a practice trading account and try out all the different methods for placing an order. Most of the big online brokers offer these free practice accounts. It doesn’t matter if you ever plan on using that broker to actually make a purchase, you are going to use the account to learn how to buy stock.
There are several different order types that you can use to buy stock. The most common order types are: market, limit and stop There are some more advanced orders such as trailing stops and conditional orders, but we will look at the most common methods of buying stock.
How to buy stock with a…
Market order
A market order lets you control the execution of a trade but not the price of a trade. If you place a market order you are guaranteed to have that order filled. Market orders are filled at the current ask price for a stock when the order is received. This type of order is most commonly used if you want to make sure you get the stock into your portfolio. The drawback is that you will be paying the current market price for the stock. For very volatile stocks market orders can be slightly risky. You may see one price quoted on your screen and buy the stock at a much higher price after you fill out your order information.
Limit order
A limit order will let you control the price at which you purchase the stock, but it does not guarantee execution. For example you see stock XYZ trading at $25.00 per share and you would like to buy that stock. You could place a limit order to buy the stock for $24.50. If the stock price drops down to that price while your order is still active then your order will execute. This type of order is very common. Limit orders let you control exactly how much money you are putting into any one stock.
Stop order
A stop order is very similar to a limit order in reverse. This type of order will execute if a stock price rises to the order price. If we wanted to buy XYZ only if the price went up to $25.50 we would use a stop order. We would only buy the stock if the price went to $25.50 or higher. Stop orders are more commonly used for selling stock. When used as a selling order they are often referred to as “stop loss” orders.
These are the three most common ways to buy stock. If you want to get a good feel for how to buy stock you should test out each of these order types on a play money account. Once you have a grasp of the mechanics involved with buying stock you will be free to develop your system for making money trading stocks.
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