How to Understand the Terms in an Online Stock Trade

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By jpwhickson
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The 1990s brought about a huge change in the brokerage industry. At one time only a few knew how to buy stock with out the use of a broker, and all of their trades had to go through the mail. Today, with inexpensive trading done online, the average American has access to low cost stock purchasing power. Unfortunately when the broker is no longer part of the trade, there is no one to explain the terms that are used in a stock trade. Read on to learn how to understand the terms of an online stock trade.

Difficulty: Moderately Easy

Instructions

Step 1

Expect a few qualifiers that are asked when you make a stock purchase or a sale. The terms become part of your order and are instructions on how to conduct the requested sale or purchase.
Step 2

Understand that if you are buying the first qualifier is the order type. You can buy, sell, sell short or buy to cover. Most people understand the terms buy and sell but selling short and buying to cover usually are mysteries. Selling short involves selling a stock and not owning it. You sell it while the price is high hoping that it drop and so it can be purchased cheaper when it is time to deliver the stock. Buying to cover occurs when a short seller has to cover the sale.
Step 3

Know that there are several types of price types. Some of the types of price terms for online stock sales are for more advanced traders. The simpler ones are market price, limit and stop limit. Market price is the price that you can buy or sell it for at that minute.
Step 4

Learn that limit orders are orders that set a limit to the price. It's the minimum price desired in order to sell a stock or the maximum one that the purchaser is willing to pay. A stop limit order becomes effective as a limit order when a certain price is reached.
Step 5

Notice that there are other price types. More advanced investors often use trailing stops naming a specific dollar amount or a specific percentage and one cancels the other orders. These protect profits by ordering a sale if the stock drops by a specific dollar amount or percentage. They trail the market price upward and change as the price rises. One cancels the other orders are orders to buy two different stocks or investment vehicles. If the market favors a specific one and the order is executed the other order is canceled.
Step 6

Look at the conditions of the order. They are GTC (Good until you cancel them.) or just for the day.
Step 7

Note that there may be qualifiers such as all or none or do not reduce. All or none means that if you can’t get the entire order you want none. Do not reduce requests that the broker does not reduce the price by the amount of the dividend on ex-dividend day.