Newbie's Guide to The Stock Market Part II--Order Types | Cynthia Crafter | Skillshare

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Newbie's Guide to The Stock Market Part II--Order Types

teacher avatar Cynthia Crafter, Personal Finance and Investing Blogger

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Watch this class and thousands more

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

10 Lessons (41m)
    • 1. Introduction

      0:47
    • 2. Order Type #1

      2:19
    • 3. Order Type #1 Example

      8:58
    • 4. Order Type #2

      2:51
    • 5. Order Type #2 Example

      8:38
    • 6. Order Type #3

      0:53
    • 7. Order Type #3 Example

      5:16
    • 8. Order Type #4

      5:41
    • 9. Order Type #4 Example

      4:24
    • 10. SUMMARY

      1:02
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About This Class

In the second part of this series, we will be covering order types. Order types are important because, like anything else in life, negotiating prices are key to get a good or fair price when making purchases. Stocks are no different. How much you make (or how much you lose) can be determined a lot by trade execution and management.  This class is for beginners. It covers the most common types of stock orders.  Knowing how these orders work are critical to stock trading and/or investing. Don't start buying and selling until you understand what these order types mean. Remember knowledge is POWER!

Meet Your Teacher

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Cynthia Crafter

Personal Finance and Investing Blogger

Teacher

Passionate Stock Investor.

BBA in Accounting. MS in Information Systems.

Like me on Facebook: http://facebook.com/BagBuckBudget for tips and articles on personal finance and retail investing.

Neither degree helped me manage or grow my money. I read, researched, and took every class I could to learn what nobody teaches in school - personal finance and investing.

I am here to share the good, bad, and ugly with the world so they can navigate successfully regardless of the current financial environment.

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Transcripts

1. Introduction: Hello, everyone. And welcome to the newbies Guide to the Stock market, Part two. And today we will be talking about stock ordered heights placing your first order and why Stock order, types manner In this class, we will discuss for basic order types. You must understand before you start trading when and where you enter or exit a stock trade can actually mean the difference between the money that you keep and the money that you may lose. So before you hit the buy sell button, please take a moment and take this class with me. See you on the other side. 2. Order Type #1: Okay, we are going to start off with the four basic types of stock orders. Uh, this is by no means a complete or exhaustive list of stock order types thes air, just the four most basic types of orders that you need to grass. There are a couple other ones, and there are some combinations or deviations of some of these basic orders. But for the scope of this class, we're going to focus on these four and expand upon the other ones in a later class. So the four basic types that we will be covering is the market order the limit water, this stop loss order and the stop limit border with these four basic types of orders, we will be covering what they are, how they're used and when should you use them. And once we go over each of those slides, then I will follow up with an example in my virtual trading account to show you how it's done. The first type of order I will be covering is called the Market Order. This is the most basic type of stock water that you can put in the primary goal of a market order. is Teoh. Get your order, Field. I just want the order field. I want the trade executed. The downside is price is not a consideration. Since my main goal is just to get my order field. Then that means that I am going to accept whatever the market gives me. Hints the name market water price will not be a consideration. I may get a good price, or I may get a not so good price, but that is the risk that I'm willing to take with this order. So now, in the next example, I'm going to show you how a market order is actually placed. 3. Order Type #1 Example: Okay. Now I'm gonna show you a quick example of how I would enter a market order. The screen that you are looking at is my virtual trading account. And I currently have $24,985 in it. And you can see the only thing that I haven't account. Right now it is 10 shares of Apple, which I but ah couple of days ago and is worth about $1500. So that's the only thing I have in my account right now. So now I want to put in a market order, and for this example, I'm gonna put in a market order for 10 shares of Facebook. So what I'm gonna do is go up to trade and choose stock Now is taking me to the stock and E T. F. Order form. And a market order is very simple because you're not concerned about price. You just want to get those 10 shares. So what you want to do in the first box is to put into ticker symbol, and the ticker symbol is a unique I. D that identifies every stock on the exchange. So for Facebook, that ticker symbol is F B and you see automatically brings up the current quotes for Facebook. Now, if you're new and you're not for me with the ticker symbols or if you are looking for a stock that, um, you're not cause not familiar with the ticker symbol, then usually on most interfaces, you can just do fine symbol. And you can actually just type in the name of the company. And you see, Facebook comes up so I can click on that, and I can also get my quote there. So now I've got the company that I'm interested in by share for the next thing you want to do is to choose your action and you see you have buy, sell so short and buy to cover. Now in this class, we're only gonna cover, buy and sell, sell short and by the cover are related to when you short a stock. And that means that you think that the price is going down. But that's beyond the scope of this class because those air more advance trays and something that is not recommended to the newbie. So we're going to focus on buying sale, and in this case, you want to buy and now is going to ask you how many shares do you want? I'm going to put in 10 shares. I also want to point out that there to radio buttons shares an amount, and on this particular form you can buy 10 shares or you can actually specify the amount of money. Say you want $1000 worth of Facebook shares, and that may end up being fractional shares because you see that the last quote was wanted to one Ah, 61. But we're going to stay with the default of shares. And the reason why we're going to do that is, I can tell you from experience most brokers, firms and most interfaces will Onley let you buy whole shares. Now there are exceptions to the rule, but most are looking for whole share, so you will have to buy a whole shares is very rare that you're able to put in amount and buy fractional shares, so the default is shears. Now you've got the next section, which is price, and you see the default is market and you have some other ones limits. Stop on quote a stop limit unquote but with a market order, all you need to do is choose market and is going toe automatically. Execute this order the last B well, the next. The next grouping is duration and advanced orders. And as you see, there's a drop down. But you drop down. It's not moving is because once again, with the market water you are executing immediately. So you're not waiting on a certain price and you will see when I show you the limit water you can put in a limit order where you're willing to either wait on that price for a whole day. Or you can wait a wait for over multiple days, which is called good until Castle. And last but not least, are the advanced orders. And once again, that's really beyond. The scope of this class is far is how to inter orders. So now you look over here and you can actually see the last, um, Price that Facebook had, and then you have a bid and ask, and I'm gonna refresh it to see if it's changed and you see, the market is open today. So these prices are going to change throughout the day because you've got buyers and sellers and they're buying a selling at different prices. So is going to change throughout the day. You see how that number is changing? The other thing that I want to The other thing that I want to point out is the bid and ask and I will go through the bid and ask, um and a little bit more death later. But just so you know, with the bid and ask is the bit usually indicates in this case, the buyer. And this is the price of the sour. So when you look at the bid and ask and this will make more sense as you start to trade more stocks. But what I want to point out here is with the bid, that means a buyer is willing to buy shares at this price. And the seller is saying I'm willing to sale at this price and the bid and ask what Facebook is. Very, very tight, you see, is within a penny of each other. And usually popular stocks that trade a lot will have very tight bid. Ask raise their within a penny of each other because there's a lot of transactions on this stock. You see, we're not even through the whole day. And you've had over 11 million shares. Exchange hands. So this was happening there. So what? The market order? Basically, you're saying I want these shares for whatever price some wine will sell them to me. So you're gonna click the preview order, and it's going to show you that you want the market price, whatever that is, and you want 10 shares of that. So now you can see your order. You know what you want. You're like, OK, that looks good. And you're gonna see this execute immediately. So I'm gonna place the order here, and now you see that? It says your order has been received and transmitted. Now, if you want to see your order status to see if it actually executed, just click on order Stannis, and you can see here that you actually bother at the market at that particular time. Someone was willing to sell it for 1 51 64 So your feel is what is the price that you actually pay for? And you see, it's a status field. So your order has been executed and all interfaces in all brokers firms are not gonna look the same, but they're very similar. So this is the type of information that you were going to be presented with. So you go back to positions and positions now is gonna show me my positions. So I have 10 shares of Apple, and now I have 10 shares of Facebook. So that is the example of a market order. Very basic executes immediately and takes the market price because you are not trying to negotiate a price. 4. Order Type #2: Okay. The next type off order that we're going to discuss is the limit order. And with the limit order, you want to be guaranteed a certain price price is of the utmost importance to you over execution. So you want to be, as you would say, in charge of the negotiations, the your primary goal is to control your purchase price if you are so actually purchasing a stock or the selling price if you're looking to sell your stock, the downside to the limit order is that your order may not be field. Keep in mind in the previous slide, when I pointed out the bid and the ask the bidders the excuse me, the buyers and the sellers and the prices that they were willing to either buy or sale for this particular stock. So if you put in an order and you will Onley take a certain price, there may not be buyers or sellers willing to meet you on that price, so you may not get the order field. That's why, in this case, price Trump's execution, your primary concern is getting this stock at a certain price now with the limit order. If you do a by limit, and that's if you are looking to purchase a particular stop. You want to get the shares at that specific price for lower. So in these cases, you're always trying to negotiate the best price. For example, if I put in a limit order for $150 for Facebook, that means I will go up to $150 to buy a share of Facebook, and I'm willing to go lower. But that's my ceiling. So now you've put in a ceiling at the the highest price that you are willing to pay for it . On the flip side, if you do a sale limit that you want to sell the shares at a specific price or higher. Now you're on the selling side. And if I actually own Facebook, I'm saying I will. On Lee sell these shares at $150. Of course, I'm willing to take more, of course, but this is the minimum price. I am willing to sell my shares. So now since we review the limit order, I'm going to go in and show you how a limit order would be placed in your account 5. Order Type #2 Example: Okay, Now I'm going to do an example of a limit water. And as I said before, limit orders air used. When you want to control the price, you only want to purchase your shares at a specific price or better. So now we're back to my virtual training account, and I'm going to put in a limit order. So I'm gonna go to stock. And now I'm going to pick a stock that I want 10 shares of and I'm gonna pick this. Stop. Maybe one. This nice, familiar, called pioneer Natural Resource is so I'm going to click on it. And now I see my quote. Here, the last price was 1 66 98 The bid and ask. Remember, this is the buyer 1 66 98 the seller wants 67 06 Now, I want to buy this stock, but I don't want the market price. I'm trying to see if I can get a little bit lower. So I'm just going to pick arbitrary price. Say I really want to put a pay for it or get 10 shares only if I can get it for 1 65 or less. So this is what I'm going to do. I'm going to click on my action to buy. I'm gonna put in 10 shares because that's what I want Instead of the market order. Now I'm gonna go and click on the radio button for who Limit order. And here is where I'm going to put the price that I want to pay for. And this is the highest price that I'm willing to pay for this stock Now. I'll pay less, of course, but I don't want to pay any more than $165. Now I go down to the next drop down, which is duration, and you see there's a day order and then there's another one called good into canceled. The day order means that I'm looking to purchase the shares today, and if I don't get them at this price, then this order goes away. So when I opened up my account tomorrow, when the market opens, this order will be cancelled. So this is only good for today if I choose good. Until council, usually good into council, usually means about 60 days away from today. So that means I really want this stock, I'm willing toe wait. So each day I opened up my account and the market opens. If I can get this $465 or less, then this order will be executed. So that's the difference they orders just for today and good until council is over several days and usually it's about 60 days. So now I've got my limit order in, and I'm gonna show you how it looks in your account. So I'm gonna previewed order. And as you can see, I have it here. I have a limited 1 65 which is the max that I want to pay for it. And I have 10 shares that I would like the purchase. So now I'm gonna show you place the order. It says that the order has been received as submitted. Let me show you what it looks like under the order status. As you can see right here, this is pioneer Natural Resource is you see, the bid and ask is higher than the price that I want to pay for. So under the status is showing that this is open, which means that it has not been field yet, So they're waiting to fill it once it reaches that particular criteria. So does not feel you see, that field has Greenfield. This is one that was canceled. This one was also field. So at this point in time, since it's the open order, I still couldn't modify. I could cancel the order if I wanted to, in any way. Because this is just the open order. Hasn't been. It hasn't been executed anyway. So is waiting in the queue. And if it meets the 1 65 drops down to the 1 65 then this will be executed. So this is the way the limit order is going toe work. So you can just put that there and wait on it. Now I'm going to show you what happens yet That limit order is executed. If it fits the criteria, because you see, right here, here's the bid and the ask. So now I'm gonna modify just to show you. Okay? Right here. My LTD's 1 65 So I want to try to get this to execute, cause what happens to a limb order once it meets the criteria, then it becomes a market order and then this trade is executed. So I'm looking here, and it looks like the buyer would actually buy it from 1 66 97 So I'm looking to by at 1 65 the seller is willing to sell their shares at 1 67 So I would normally do this because normally with the limit order, you have it below the B because that means this spread right here is too much for you. You want to pay less. So what I'm gonna do, though, to make this limit execute is I'm going to put in, say, for example, just just pretend I put this in earlier in the day where the prices were different. So say these prices were much higher. But so early in the day, say, um, it was 1 69 and 70 and I want it the shares, but I wanted to make sure I got him at a lower price. So here I am. Here's the limit, and I'm going to preview it. Okay, so now is's I want these shares on Lee of his 1 67 and 20 cents and I put it above the ass . Really? We could get executed. So I'm gonna place this virtual or Okay, my order has been submitted. When I look under order status, let me show you something. This limit order, you see, has been field. And the reason why it was field is because I said I would want those shares if I could get it for 1 67 20 or less. And the bid esprit, it was between 1 66 88 on why 66 93 sell since the bid s spread was less than the price that I put in it executed. And it gives me the price that I actually paid for. And it was 1 66 93 So now you see how limit orders work. You want to put in a limit water if you want to dictate a specific price that you want to pay for it. And in the next example limit order number two. I will be showing that same thing in reverse when you actually sell a stop that you want to put in a stop to determine when you would actually sell a stock. But that would be in the next example 6. Order Type #3: Okay. Now, the next type of order that we're going to discuss is THESTREET op or stop loss order. This is the order that you would place if you want to sell your stock when it reaches a certain price. Your partner goal is to protect profits or to prevent losses. The downside is the final price may be much lower in facet volatile markets. If you've ever done any type of trading, you know that the stock market can move very far, very fast. So even if you put in the order to say that you want to sell your stock at a particular price and create a floor by the time your trade is executed, it may be a light light lower. But in the next section, I will show you an example of how to put in a stop loss order and further along in the class, I will point out the problems with the stop loss order 7. Order Type #3 Example: Okay, now we're back into our virtual trading account and we are going to put in a stop loss order. So I'm going to go to positions so we can get to the position screen. And as you see, I currently have three stocks in my portfolio. Apple, Facebook and Pioneer Natural Resource is now say, for example, I want to make sure that Facebook does not drop below a certain price right here. I've paid ah, $151.64 for 20 shares, and I want to make sure I defined my risk. So what I want to do is put in a stop loss order that will trigger if Facebook falls below 1 20 So this is the way I'm going to do it. Gonna click on tray and go to stock. And now I'm back to my stock and et of order form. What I want to do is go ahead and put in my ticker symbol, Facebook, and my action will be sale. And I want to sell 20 years now under despite price section, I want to choose Stop on quote. This is where I'm going to put the price that I want the order to trigger if it reaches that price. So I'm saying I got this at $151. If he gets the 1 20 that's all I want to lose some defining my risk. I'm gonna put in $120. Keep in mind that stop loss orders can also be used to protect profits. So say, for example, I didn't buy this at $151. Say, for example, I bought it at $100 and now is that 1 51 So if I bought it at 100 and now set 1 51 I've made about $50 per share, So I want to keep the start, and I know the stock market can be volatile, but I want to go ahead and sail and take some profits if it reaches 1 20 because the last thing I want to do is lose out my profits or even hold it at a loss. Say something happens to Facebook and it goes past the price that I paid for. So say if I paid 100 it went all the way down to 90 bucks. So now I've gone from having a profit to having a loss, so you can also use it to protect profits. But in this case, I just bought the shares and I'm saying I just want to sell them if it gets toe 1 20 So once again, the ah, what you can do is now preview the order. So here you go. And it says up here that this will be placed, um, tomorrow, the next trading day. In the reason why saying that, Of course I'm I'm doing this stop loss and the market is closed cause it closes at 4 p.m. So that's why it's saying that this order will become effect that the next market day. But in a way, you see that? It says the action, this cell, 20 shares of Facebook and the stop quote is 1 20 Now, in this case, I've got a day order. So what will happen is that this will simply be put into the queue. And if here you go, your order has been received or our submitted. So if at any time Facebook reaches 1 20 this is going to become a market or or live order, which means that is going to be sold. And, Aziz, You see, I've been playing with this a lot, so you won't get lost here. Let me just do open orders so you can see my open order right here. Have put in order to sail right now is between 1 51 45 1 51 64 But if it drops the 1 20 then I want to sell it. So right now it's open until executed. So that's your stop loss order example. 8. Order Type #4: okay. In the previous section I talked about, there may be some problems with stop losses. The problem was, start losses is that the stock order could be field at any price below the target price that you enter. And a perfect example is said, for example, that you owned shares of Facebook and you had a stop loss of $120. All you are instructing the market to do is to sell your stock if it hits $120. The problem with that is that once this order has been triggered, it could be field at $120 $110 $100. Or it could be much lower because that's all the instructions are is to tell the market that Hey, I want to sell to start when it hits $120 depending on what is going on in the market, it may be plunging, but at the end of the day, by the time your trade is executed, you are now willing to take any price at $120 or below. Now, why do stocks plummet? You know they move a lot throughout the day, but just to take a nose dive, it could be for a variety of reasons. One could be bad news. Lawsuits, downgrades. If your particular company is involved in a lawsuit county scandal, you get analysts upgrade that can cause the stock price the planet. Secondly, geopolitical events, any kind of war skirmishes, conflicts that may affect the United States that caused the markets to get nervous and to plummet. The other thing is poor earnings. If the company comes out and actually report poor earnings and the investors do not like what they hear, they come out and say that business is decelerating. They didn't meet their targets that can cause a nose dive and finally, flash crashes. And this doesn't happen a lot, but I have seen it happen more than I would like to see it happen. But sometimes they're either glitches in the system. Something can happen, and you will just see the price. Just appointment. So not sure if it's due to high frequency trading but some kind of glee. Something happens and the stock price drops for whatever reason. So the thing is, you don't want to get caught up in India The circumstances where your stock plummets way below the price in which you wanted to sail because maybe you didn't want to sail at that lower price. And you just want the hold on, because this is what happens some of these events, depending on how sure they are your stock price may rebound the same day or even the same hour because what happens in the market is usually it will have a very knee jerk reaction. And sometimes the initial reaction is not the reaction it will have later on. So sometimes you want to see if it rebounds or the news is not as bad as the investors thought it waas. But at the end of the day, you don't want to sell when the market plunges and then it rebounds. And you realize now you soldier stopped for a much lower price that you want it to sell your stock, and how do you control this with the stop limit order with the start limit order, you want to set the price range in which the stock can be sold. Your partner goal here is to prevent selling in volatile markets just like what I have described. The downside. If this is truly bad news and the stock price stays down or the reaction continues to be negative, you may lose a lot if the price doesn't recover. Because in this particular scenario, you would say I want to sell at 1 20 But if it goes, say, for example, below 1 10 I don't want to sell it, so you are setting a range. If it drops below 1 10 your order will not be executed. But say, if this is really damaging news and the stock continues to sell off, then it could sell off to 90 100. Excuse me, 90 80 etcetera, and you're still holding the stock, so you may incur more losses than you had anticipated. So you'll have to think long and hard how you would like to set this up, But in the next section, I will show you how you can enter a stop limit order 9. Order Type #4 Example: Okay, Now we're back to my virtual trading account. And if you can see, I currently have three stocks Apple, Facebook and Microsoft. And in this example for Stop limit, I am going to initiate a stop limit order on my apple shares. So what I'm gonna do is go to trade so I can get to my ticket screen, and it's already populated with the ticker name. And right here is set for the action to actually sell the stock. And you can see I can go from by the sale, But in this case, I will be doing a stop limit on a sale. So I currently have 10 shares of Apple, and for this example, I want to sell half my position or five shares if it falls below the price of 1 40 So, as you can see, the last price was 1 46 28 And what I want to do is to set my type of order and I would go to stop limit on quote. Okay, so now I have two boxes to stop in the limit. So what I want to do is to put in my stock price, which is 1 40 which means that if it falls to that price, I want to try to sell my stock. However, I want to dictate the price range or the price that I'm willing to take for my stock. So I'm not willing to sell it for a less than $135. So this is how I put in a stop limit order. If it falls the 1 40 I want to try to sell it. But if it falls below 1 35 I do not want to sell my stop once again. Here is the duration dropped down. I can put it in for that particular day. Or I could actually use good into til cancelled. So now I'm going to go and preview it. Um is giving me this note up here because I'm doing outside of market hours so you can just ignore that for now. Looking at this, this is what this is telling you what you have put in. So I'm gonna sell five Apple shares, and my stop limit is 1 40 and I will take a price down to 1 35 And that's good until Castle . So now all I do here is put in my order. And there you go. And you see that it is over here. My stop limit quote. So if I go here where I can see the entire screen is now I have my order in. And when the market opens, if for some reason something happens with Apple gets a downgrade or it comes out with some bad news about slower iPhone growth or what have you, and it goes down to 1 40 then I want to sell half my position. But this protects me from something like a market flash crash, where if you've been investing or trading for some time, you seen this happen a couple of times where the market will just do a dump, and I mean a serious dump. This. Say, Apple goes down in the flash crash to $100 you don't want to sell it at $100 then immediately comes back up just because, ah, a lot of the market now is done with algorithmic or high frequency trading so it could happen, and then it automatically will. It very quickly recovers. So now you've sold Apple for much lower price than you intended to, so this gives you some protection against that 10. SUMMARY: Okay, everybody, this go ahead and do a quick summary of the class. So just to review the four basic order types number one market order. This is a win. Execution trumps price. You want to execute the trade immediately? Number two the limit order. That is when price Trump's execution. You only want to execute this trade if you can get it at a certain price. Number three, The stop loss order. You want to sell your stock if it hits a certain price and number four the stop limit order . You want to sell your shares if it hits a certain price, but you have a specific range if it falls below the range that you do not want that trade to execute. Okay, that's all for now. So if you learned anything, please go ahead and give me a thumbs up. So until the next class, happy investing