Stock Market

Regardless of which type of broker you choose, most of the trades you place with it are going to fall into one of three categories:

1. The Market Order

This instructs the broker to buy or sell at whatever the current market price is, no matter where it goes before your order is filled. You can expect that your broker will complete trades of 1,000 shares or less at or very close to the last trading price recorded. Such orders are typically executed electronically. You can usually get your price confirmed before you hang up after placing the order. Larger orders of 25,000+ shares may have to be "worked." For example, if ABC stock is moving up and you place an order to buy 50,000 shares of that stock, which was trading at 45, you may receive a report from your broker that you purchased:

10,000 shares at 45 1/8
15,000 shares at 45 1/4
10,000 shares at 45 3/8

At this point, your broker may say: "I can fill the balance at 45 3/4." Now it's your decision: do you want to fill at that price or step aside and see if the price declines? If you go ahead, your broker would most likely report the balance of the trade as:

100 shares at 45 1/2
100 shares at 45 5/8
14,800 shares at 45 3/4

Your average stock price (before commissions) would be $45.40.

2. The Limit Order

Using the previous example, you might conclude that ABC stock will settle down in price and instruct your broker to "buy 50,000 shares of ABC with a 45 limit." Next, you must tell the broker if this is a day order (i.e., either filled that day or canceled) or "good 'til canceled" (referred to as GTC). That means the order will stay open until the broker fills it or you cancel it.

The problem with GTCs is you can forget you placed them. Maybe a few weeks later you'll buy alternative stock XYZ only to receive a follow-up call from your broker stating "we just filled your GTC on ABC." Whoops, a little short on money? It's easier to stay on top of things if you cancel and reenter your order each day, although your broker won't appreciate the extra work.

3. The Stop or Stop Loss Order

Let's say you bought ABC stock at 30, saw it shoot up to 45 3/4, and it has now backed down to 42. At this point, you may be more willing to lock in a gain rather than roll the dice to see if it crests the 45 3/4 high again. So you instruct your broker to place a stop loss order to sell at $40. If the stock goes up, great; if it goes down, you're "out" at 40.

Unless you are a professional investor dealing with large orders, our advice would be to use market orders. Of the three, there isn't the margin of error that exists in the latter two choices. You're still getting in on the action, but you're letting a professional do most of the work.