Hello and welcome to the Wealth Training Source. My name is Rob Britt and this site is designed to introduce basic market concepts to the beginning investor. Every week I'll be adding a new article and try to educate on some aspect of the stock market. Hope you return regularly and subscribe to my weekly e-zine. (Subscribe and I'll send you a free copy of my e-book "Starting to THINK BIG" a $17.95 value)

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This Week's News Letter

December 31, 2006

Buying using Market and Limit Orders

       This week’s letter brings us back to some really basic parts of investing. When you are looking to purchase shares of stock, there are a few ways to do that. Whether you are talking to your broker, or doing the trading on-line these same terms apply.

       The first term is buying at Market. This means you are willing to pay the current price of the stock, as determined by current demand. If you really want to purchase shares at any price and right now, this is the way to do it. You are relinquishing control to the market. You broker, or program will snatch up the shares you desire at the current market price.  For example, you want to buy 200 shares of XYZ at market price. When you were initially looking at the company, doing your Due Diligence, the price was at 5 dollars. That seemed like a good entry point, so the next day you put in your Market order. Unknown to you, a few other people saw the same stock and also placed orders. The price was driven up to 7.50, so that is where you purchased your shares. Total cost, $7.50 X 200 shares plus transaction fee of $10 = $1510.  If you really wanted the stock, and $7.50 also fit into your model of a good price, you are the proud owner of 200 shares. If you didn’t want to spend $7.50, too bad, you still own the shares. How could you have avoided this?

       The next term is called a Limit order. This works similar to the market order, in that you are still saying you want the 200 shares, but you are calling the price. If you put in the order and said 200 shares Limit $5 per share, then $5 is the maximum price you will pay. You are limiting the price. If the price has risen, you will not get the shares. You can also make this have a defined term by saying the order is good until you cancel it, or until the end of the day. You can define the time line you are willing to enact that trade. With the limit order, your cost will be $5 X 200 shares plus transaction fee of $10 = $1010. However, the trade may never take place if the stock doesn’t see the $5 price again. On the other side, if the price is below $5 when you place the order, you will get the lower price and the total cost will be lower. Limit doesn’t say, “I will pay $5.” It sets the maximum you are willing to pay.

       Next week I will delve into the realm of selling orders. I will cover Stop-Loss, Stop-Limit, and two types of trailing stops.

Until then, Solid Investing to all,

               Rob

Rob@WealthTrainingSource.com

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The columns, articles, message board posts and/or any other features provided on Wealth Training Source are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author’s own and there is no implied endorsement by Robert Britt of any advice or trading strategy

copyright Robert E. Britt 2006