Markets & Limits & Stops,
OMY !!!
A guide to stock transaction orders
Herb Barnett
barnett@zbzoom.net
Expo Seminar B3
BETTERINVESTING NATIONAL CONVENTION
Disclaimer
•
The information in this presentation is for educational purposes only and is not
intended to be a recommendation to purchase or sell any of the stocks, mutual funds,
or other securities that may be referenced. The securities of companies referenced
or featured in the seminar materials are for illustrative purposes only and are not to
be considered endorsed or recommended for purchase or sale by BetterInvesting™
National Association of Investors Corporation (“BI”) or the BetterInvesting Volunteer
Advisory Board, its volunteer advisory board (“BIVAB”). The views expressed are
those of the instructors, commentators, guests and participants, as the case may be,
and do not necessarily represent those of BetterInvesting™ or BIVAB. Investors
should conduct their own review and analysis of any company of interest before
making an investment decision.
•
Securities discussed may be held by the instructors in their own personal portfolios or
in those of their clients. BI presenters and volunteers are held to a strict code of
conduct that precludes benefiting financially from educational presentations or public
activities via any BetterInvesting programs, events and/or educational sessions in
which they participate. Any violation is strictly prohibited and should be reported to
the President of BetterInvesting or the Manager of Volunteer Relations.
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Our Objective
• To lessen any uncertainty about your
choices when buying or selling a stock
• We will discuss
– Common terms
– Order types
• Pros and cons
• Examples
– Entering orders
– Conditional orders
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About Our Examples
We will be discussing only “long” positions, not
margin, shorts or options.
Actual dollar amounts and percentages used in
the examples are not to be considered as
recommendations.
When placing a trade you should always use
whatever values are appropriate for your
specific situation.
Commissions are ignored for these examples.
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Stock Pricing Terms
• Think of market as an auction
– Bid price What a buyer is willing to pay
– Ask price What a seller wants to receive
– Spread Bid  Spread  Ask
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Order Types
• Market
• Good ’Til Canceled
• Limit
• Stop
• Trailing Stop ($ or %)
• Conditional
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Market Order
• Transaction is executed immediately
during normal trading hours
– Buy at the market
• Pay the ask price
– Sell at the market
• Receive the bid price
• You pay, or receive, the current quote
at the moment your order is entered
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Good ’Til Cancelled (GTC)
• Order is open until executes or expires
• May or may not execute
– Executes only if your target is met
• Your choices for expiration
– End of trading day
– End of interval set by broker
– When you cancel
• May cancel automatically on split or
dividend
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Limit Order
• You specify a price
– Broker may refuse outrageous request
• May be limited to 20% to 30% from
current price
• Broker acts when order is triggered
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Buy Limit
• Specify price below current price
– Stock currently at $35
• SSG suggests Buy Below $30 (3:1 U/D)
• Enter “Buy with limit @ $30”
– May execute at or below $30
– May not execute at all
• Stock may not drop to your limit
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Stop-Loss
• Target must be below current price
• “Sell if price drops to $30”
• Some protection against sharp
drop in market
• No assurance you will get price
you specify
– Bad news may force price through
your target without stopping
– You will get best price available
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Stop-Limit to Sell
• Sets specific price for execution
– “Sell stop-limit at $30”
• Stock will be sold if there is a buyer
at $30
• Stock will not be sold if price drops
below $30
– Order is still in effect (Day or GTC)
– Will execute if stock goes back up to $30
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Trailing Stop to Sell
• Provides some protection for
profits if stock is rising
• Stop is adjusted upward (repriced) continuously as stock
reaches new highs
Trailing stop can go up, not down
• Examples:
– Sell if it drops $5
– Sell if it drops 10%
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Trailing Stops
Stop moves up
as stock price
increases
Buy @
$40
Trailing
Stop set
@ $4
Stop stays
level as stock
declines
Stock hits
high of
$53, stop
is at $49
Stock
drops
below $49
stop, Sell
Order is
activated
BETTERINVESTING NATIONAL CONVENTION
$ Trailing Stop Examples
• Current Price $50
– Trailing stop $5.00 below = $45.00
– Stock is sold if it drops to $45.00
• Current price rises to $100
– Trailing stop $5.00 below = $95.00
– Stock is sold if it drops to $95.00
– Much smaller % change triggers sale as
price increases
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% Trailing Stop Examples
• Current Price $50
– Trailing stop 10% below = $45.00
• Stock is sold if it drops to $45.00
– Sold at $5.00 less than high
• Current price rises to $100
– Trailing stop 10% below = $90.00
• Stock is sold if it drops to $90.00
– Sold at $10.00 less than high
• % change is the same
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Setting Your Trailing Stop
• Percentage may be more
appropriate than dollar amount
• If set too tight, you may lose good
stock on brief dip
– Don’t get too greedy
• Normally entered as GTC order
– Need to keep track of expiration
• Broker may cancel or adjust on
stock split or dividend
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Market Order Entry
Basic order
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More Detailed Order Entry
Specify
target for
all except
market
orders
Basic order
Set up a
conditional order
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Conditional Orders
• Enter combination of multiple orders
• Cannot be market order
– Multiple orders must be same type
• OCA – One Cancels Another
– If first executes, other is canceled
• OTA – One Triggers Another
– If first executes, other is submitted
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