How To Buy Sell And Trade Stocks
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In the old days, there were a number of barriers to taking action with your portfolio. These days, if any notion pops into your head because of a social media post, or a panicky news item on CNBC, a couple of clicks on your smartphone could lock in a trade with devastating long-term consequences.
Or perhaps your desire to trade is based on the extreme ease of doing so. Maybe your investing app put a top-10 list of hot stocks into your line of vision. Is that what brought this particular trade to mind
A type of investment that pools shareholder money and invests it in a variety of securities. Each investor owns shares of the fund and can buy or sell these shares at any time. Mutual funds are typically more diversified, low-cost, and convenient than investing in individual securities, and they're professionally managed.
The profit you get from investing money. Over time, this profit is based mainly on the amount of risk associated with the investment. So, for example, less-risky investments like certificates of deposit (CDs) or savings accounts generally earn a low rate of return, and higher-risk investments like stocks generally earn a higher rate of return.
The annual operating expenses of a mutual fund or ETF (exchange-traded fund), expressed as a percentage of the fund's average net assets. It's calculated annually and removed from the fund's earnings before they're distributed to investors, directly reducing investors' returns. For example, if you had $10,000 invested in a fund with an expense ratio of 0.20%, you'd pay about $20 a year out of your investment returns.
A sales fee charged on the purchase or sale of some mutual fund shares. The load may be called a charge or commission. The fee may be a onetime charge when you buy fund shares (front-end load), or when you sell fund shares (back-end load), or it may be an annual 12b-1 fee charged for marketing and distribution activities.
If we receive your request to buy or sell a fund before the close of regular trading hours on the New York Stock Exchange (usually 4 p.m., Eastern time), your transaction will receive that day's closing price.
Unlike Vanguard mutual funds, the cutoff for other companies' funds varies by fund. You can find the cutoff time by clicking the fund's name as you place a trade. Orders received after this deadline will execute at the following business day's closing.
Vanguard Brokerage and the fund families whose funds can be traded through Vanguard Brokerage place certain limits on frequent transactions and reserve the right to decline a transaction if it appears you're engaging in frequent trading or market-timing.
Some funds charge a fee when you buy shares to offset the cost of certain securities. Some funds charge a fee when you sell fund shares, or when you buy or sell shares within a specific time period. These restrictions are an effort to discourage short-term trading.
Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
When you place an order to buy or sell stock, you might not think about where or how your broker will execute the trade. But where and how your order is executed can impact the overall costs of the transaction, including the price you pay for the stock. Here's what you should know about trade execution:
No SEC regulations require a trade to be executed within a set period of time. But if firms advertise their speed of execution, they must not exaggerate or fail to tell investors about the possibility of significant delays.
If for any reason you want to direct your trade to a particular exchange, market maker, or ECN, you may be able to call your broker and ask him or her to do this. But some brokers may charge for that service. Some brokers offer active traders the ability to direct orders in Nasdaq stocks to the market maker or ECN of their choice.
A market order is an order to buy or sell a stock at the market's current best available price. A market order typically ensures an execution, but it doesn't guarantee a specified price. Market orders are optimal when the primary goal is to execute the trade immediately. A market order is generally appropriate when you think a stock is priced right, when you are sure you want a fill on your order, or when you want an immediate execution.
A few caveats: A stock's quote typically includes the highest bid potential buyers are willing to pay to acquire the stock, lowest offer potential sellers are willing to accept to sell the stock, and the last price at which the stock traded. However, the last trade price may not necessarily be current, particularly in the case of less-liquid stocks, whose last trade may have occurred minutes or hours ago. This might also be the case in fast-moving markets, when stock prices can change significantly in a short period of time. Therefore, when placing a market order, the current bid and offer prices are generally of greater importance than the last trade price.
Note, even if the stock reached the specified limit price, your order may not be filled, because there may be orders ahead of yours. In that case, there may not be enough (or additional) sellers willing to sell at that limit price, so your order wouldn't be filled. (Limit orders are generally executed on a first come, first served basis.) That said, it's also possible your order could fill at an even better price. For example, a buy order could execute below your limit price, and a sell order could execute for more than your limit price.
A stop order is an order to buy or sell a stock at the market price once the stock has traded at or through a specified price (the \"stop price\"). If the stock reaches the stop price, the order becomes a market order and is filled at the next available market price. If the stock fails to reach the stop price, the order isn't executed.
When you want to buy a stock should it break above a certain level, because you think that could signal the start of a continued riseA sell stop order is sometimes referred to as a \"stop-loss\" order because it can be used to help protect an unrealized gain or seek to minimize a loss. A sell stop order is entered at a stop price below the current market price. If the stock drops to the stop price (or trades below it), the stop order to sell is triggered and becomes a market order to be executed at the market's current price. This sell stop order is not guaranteed to execute near your stop price.
While the two graphs may look similar, note that the position of the red and green arrows is reversed: the stop order to sell would trigger when the stock price hit $133 (or below), and would be executed as a market order at the current price. So, if the stock were to fall further after hitting the stop price, it's possible that the order could be executed at a price that's lower than the stop price. Conversely, for the stop order to buy, if the stock price of $142 is reached, the buy stop order could be executed at a higher price.
The next chart shows a stock that \"gapped down\" from $29 to $25.20 between its previous close and its next opening. A stop order to sell at a stop price of $29--which would trigger at the market's open because the stock's price fell below the stop price and, as a market order, execute at $25.20--could be significantly lower than intended, and worse for the seller.
In a similar way that a \"gap down\" can work against you with a stop order to sell, a \"gap up\" can work in your favor in the case of a limit order to sell, as illustrated in the chart below. In this example, a limit order to sell is placed at a limit price of $50. The stock's prior closing price was $47. If the stock opened at $63.00 due to positive news released after the prior market's close, the trade would be executed at the market's open at that price--higher than anticipated, and better for the seller.
Many factors can affect trade executions. In addition to using different order types, traders can specify other conditions that affect an order's time in effect, volume or price constraints. Before placing your trade, become familiar with the various ways you can control your order; that way, you will be much more likely to receive the outcome you are seeking.
Because of all that volatility, it can be risky for individual investors to buy and sell stocks to make a profit, so many investors prefer investments like ETFs, index funds, or mutual funds, which contain many stocks in one neat package.
Even if a passively managed index fund might be a better long-term investment, there are still lots of reasons people want to trade stocks: because they enjoy it, because they want to take a more active role in their financial goals, because they want to make specific choices with their investments (like investing in socially conscious businesses or in businesses they support).
For individuals looking to start investing, there are certain concepts to know: diversify, start small, focus on overall investing, and have long-term goals. Most importantly, one needs to know when to buy and sell.
While ultimately it can be a good idea to buy stocks across different industries in order to diversify, it sometimes helps to start with a business or industry one is familiar with. Knowing about the company can help put the earnings reports into context.
Understanding the value of stocks is always tied to understanding the business those stocks represent a share in. Is the company a good investment Does it have sound financials and growth potential Here are helpful questions to consider when contemplating buying a stock:
As a beginner or without the right research, it can be hard to tell when ex