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Athena financial & insurance services, inc.

Registered Investment Advisors
Text Box: Many stock investors just assume that when they wish to make a trade they have to call their broker or enter the order on line and then wait to see what price they paid. But there are ways to manage the process automatically which can help you to maximize profits or minimize losses. The most common type of stock order is called a market order. This is an order to buy or sell a stock at the current selling price. The advantage of a market order is you are almost always guaranteed your order will be executed. The disadvantage is the price you pay for the stock may not always be the price you obtained from a real-time quote service or your broker. That is because stock prices are volatile, particularly for heavily traded issues. When you place an order “at the market,” especially for a large number of shares, there is a greater chance you will receive different prices for parts of the order. If people are buying at the same time you want to, the stock price will go up; if they are selling when your order executes the price will most likely go down. If you want to avoid selling a stock for a price higher or lower than you intended then you must place a limit order. A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. For instance, let’s say Widget’s Inc. is selling for $10 a share but the price has been rising rapidly and you don’t want to get caught paying more than $15 a share. By placing a limit order, you can be sure that the purchase will only be completed if it can be filled at $15 a share or better. The downside of a limit order is that it may never be executed because the market price may surpass your limit before your order can be filled. A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the specified price is reached, your stop order automatically becomes a market order and will be filled immediately. But the price you get will not be guaranteed. A sell stop order helps investors to avoid further losses or to protect a profit that exists if a stock price continues to drop. A stop order to sell is always placed below the current market price. Investors can avoid the risk of a stop order not guaranteeing a specific price by placing a stop-limit order which combines the features of both stop order and a limit order. Since a stop order essentially does nothing more than trigger a market order the benefit of a stop-limit order is that you can control the price at which the trade will get executed. But as with all limit orders, a stop-limit order may never get filled if the stock's price never reaches the specified limit price. This can happen in fast-moving markets where prices fluctuate wildly. Good-til-cancelled orders (GTC) are orders to buy or sell a security at a specific or limit price that lasts until the order is completed or cancelled. A GTC order will not be executed until the limit price has been reached, regardless of how many days or weeks it might take. Investors often use GTC orders to set a limit price that is far away from the current market price. Most brokerage firms may limit the time a GTC order can remain in effect without renewing it. Ninety days is not untypical. Unless your order is “good-til-cancelled”, stop or limit orders are considered “day orders,” meaning they are good only during that trading day. Orders that have been placed but not executed during regular trading hours expire at the end of the day and will not automatically carry over into after-hours trading, where execution costs may be higher. Similarly, day orders placed during after-hours trading can only be executed during that after-hours session.▲

Stock trading tips...

Volume 17, Issue 24

December 4, 2006

Managing Trade Executions