Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 149

    that there is enough liquidity in that specific stock (i.e., there is good volume action).
  • Limit Order - With the limit order you can set the price per share at which you are willing to buy or sell.Your order will only execute at your specified price level or better.
  • Stop Order - Your order will execute at market price after the stock price touches the level you have specified.
  • Stop Limit Order - You order will execute at your specified price after the stock price touches the level you have specified.

Let's explains these order types further, as I know you may be scratching your head about the last two types of orders. As explained, a market order is the simplest of all orders. Back to our example. You really want to buy 20 shares of Ford now. So you tell your broker to buy 20 shares of Ford at market price. By doing that you enter into a market order and your broker will buy your shares at the current going ask price. If the stock happens to be a high volume stock, your order would execute immediately. The downside is when the particular stock has a super-low volume. In that case a potential seller might have placed a high ask price and you would end up paying a lot higher price than what you thought. For example, if you checked the stock price before placing the market order and it was $50 per share, that would reflect the last transaction price on that stock. For a high volume stock (and Ford is considered high volume) your market order would probably execute right around that price give or take 1/8 or 1/4 point. (Points mean dollars in trading lingo.) But if the stock is trading at a low volume, you may end up paying $51, $52, or whatever the next ask price might be. Of course the same bad situation applies if you are dealing with a rapidly rising (upside volatile) stock. By the time you place your market order, the ask price might have moved a lot higher. It is also quite possible that you may end up paying less than what you expected for the stock if the stock is rapidly falling (downside volatile). As you can see, with market order you have the benefit of immediate execution but


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    Table of Contents Copyright and Disclaimer Foreword Money
    Bonds Futures Stocks Options
    Mutual Funds Retirement Final Words Appendix A

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