Issuing a limit order

Limit orders provide you with the convenience of not having
to constantly watch the market. They can also protect
you against dramatic movements in the market.
A limit order directs the brokerage to buy or sell stock when
the price drops or rises to a specific number. When you place
a limit order, the brokerage is limited to
n Buying the stock at the specified price or lower.
n Selling the stock at the specified price or higher.
For example, a limit order to purchase 500 shares of XYZ
stock at $40.00 a share means the broker may fill the order
at $40.00 or less, but not at $40⁄18 per share. Alternatively, a
limit order to sell at $40.00 means that the broker can’t accept
a fraction of a penny less than $40.00 for your stock.
84 CliffsNotes Getting Started in Online Investing
When you place a limit order, you need to specify whether
the order is a day order or a good till canceled (GTC) order.
A day order expires at the end of the trading day. A GTC order
doesn’t expire. You have to remember to cancel it, as I discuss
later in this chapter.
Placing a stop order
A stop order is a contingency order that becomes a market
order when the stock trades, is bid, or is offered at a specific
price. Stop orders differ from limit orders because stop orders
happen at a particular price rather than within a price range
like a limit order.
A stop order can help you stay in control of your portfolio
during a period of time when you can’t get to your computer
or reach your broker by phone. Stop orders are also very helpful
when the market is on the move.
For example, if you purchased XYZ stock at $45.00 a share
hoping it would go up, but now the price is dropping, you
may want to limit your losses by placing a stop order to sell
the stock if the price drops to $42.00 a share.
Understanding the complex stop
limit order
A stop limit order is a contingency order that becomes a limit
order when the security trades, is bid, or is offered at a specific
price. It helps you take advantage of sudden movement
in the market while limiting your risk. It’s more complicated
to understand than the other types of orders, but can be very
useful to you given the right market conditions.
An example of a stop limit order is “Buy 100 shares of XYZ
stock; stop at $120.00 with a limit of $1201⁄4.” This means
you want your order to be activated to purchase stock at
Chapter 7: Making Your First Online Trade 85
$120.00 per share, but not if it goes above $1201⁄4 per share.
Sell stops are used below the market price, and buy stops are
used above the market price.
The advantage of this type of order is that it gives you more
control over the price at which your order is filled. The disadvantage
is that your order may go unfilled if your specifications
can’t be met.
Another variation: Fill or kill
The so-called fill or kill instruction has a name that’s pretty
descriptive of its function. Some online brokerage services
allow you to specify that a limit order should expire — or be
killed — if it can’t be executed within a certain time frame.
Executing, Confirming, and Canceling
Orders
Are you ready to invest a chunk of your savings with a couple
clicks of your mouse? Indeed, all it takes is a few clicks to
reallocate or change the character of your portfolio.
Executing and confirming an order
Now that you’ve scoped out the market, you’re ready to make
a move. Fortunately, it’s easy to act with most online brokerages,
barring the occasional technological glitch.

Regardless of which online brokerage you use to place a trade,
you need to have the following information ready to enter:
n Quantity: Specify the number of shares of stock you
want to buy or sell.
n Ticker symbol: You must enter the ticker symbol for the
stock you want to trade.
n Price: Enter the price at which you want to buy or sell
the stock.
n Order type: Indicate whether you want to place a market,
limit, stop, or other type of order.
n Expiration: Specify when you want the order to expire.
After you place your order, a confirmation message appears
on your screen. If this message doesn’t appear, call the brokerage
immediately. If you simply repeat the steps you took
to enter the trade, you may end up owning twice as much
stock as you planned.
Don't forget this
Enter number of shares Enter price per share Specify date order expires
Enter ticker symbol Select order type
Chapter 7: Making Your First Online Trade 87
Canceling or changing an order
Changed your mind? Got cold feet? Fortunately, canceling
or changing an order online is not a complicated proposition.
All brokerages allow you to cancel an order before the brokerage
executes the trade — but most charge a fee. Normally,
canceling an order costs $10.00 or less, and you accomplish
it pretty much the same way you placed your initial order.
Canceling an order usually takes about as much time as placing
one. Unfortunately, scrapping your order can seem
painfully slow in a volatile market when you’ve changed your
mind. Don’t be surprised if your cancellation is confirmed
moments after your order is filled (and once your order is
executed, you can’t turn back). It’s nobody’s fault; that’s everyday
life in the world of online investing.