Stock Trading Tips - Order Types And When To Use Them

If you are trading in the financial markets, either stocks, options, bonds, commodities, or foreign exchange, you need to master these five order types. Here they are, and how you should use them:

1. A market order. Market orders are orders to buy stock at whatever price is available. In a fast moving market, these get filled (sold to you) at pretty much the price you expect.

It is important to remember that you do not control the price you will buy at, but normally you have a pretty good idea. Avoid this kind of order when there are few buyers and sellers.

2. Limit Order. This is an order that executes at a specific price that you set (or better) and can be open for a specific time period. While a limit order will prevent you from buying or selling your stock at a price that you don't want, if the price is way off base, the order will never execute.

Some brokers charge an extra fee for limit orders, since sometimes these orders can fall out of range of trading, and just waste the brokers time.

3. Stop Orders. A stop order is a market order that only gets activated if a condition is met. For example, the most common stop order is the stop loss, which opens a market sell order if the financial instrument trades at a certain price or lower.

4. A stop-limit order. This is just like the stop order, but with a set price. For example, you set a stop limit sell on IBM at 100. IBM drops to 100, and your "sell at 100" order is activated, but if IBM drops to 99 and continues to drop, your order may never be filled.

5. A trailing stop order. This is an order that is dependent on the current prices. Usually it is used to lock in profits after some have been made, while letting you ride the trade for even better profits. For example, a trailing stop at 10 below market means if the stop ever drops 10 from its most recent highs, your market order to sell will be activated.

These order types are very important to master in every financial market, since using the right order type in a particular market condition is essential to profiting from good stock tips.

Knowing these order types will be very important as you learn to master trading, since each one has significant benefits in certain market conditions.

To master the order types and knowing when to use each type, you should practice paper trading without real money, until you understand how the order types operate, and how they affect profitability.

Once you get comfortable with all the order types, and getting your orders entered and filled, and you start to see success, then you can switch over to a cash or margin account and trade for real.

It does not take long before you will be on par with the professional traders, who trade with the precise order type with every trade they make. And remember, these order types work in all markets, including shares, options, commodities and foreign exchange markets.

Article Source: http://www.articlegoldmine.com

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