Determining How to Buy Your Stock

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In virtually every movie I see that has a stock market scene, people are screaming "Buy, sell, limit, stop, market order," and so on at the top of their lungs. (Usually these same people are also involved in substantially more intrigue than ever happens on the stock floor, but that's another matter.) Here we finally get to clear up the confusion regarding the terms used in purchasing and selling stock. Contrary to popular belief, these terms are not interchangeable and they actually do mean something.

After you've decided to buy stock in either a round or an odd lot, you need to tell your broker how to order the stock.

Plain English

Orders are instructions given to a broker to specify under what conditions stock should be bought or sold.

Consider Timing

Your first consideration is the amount of time in which you allow your broker to complete the transaction for you.

Say that you want your broker to buy 100 shares of XYZ Company, but only if the broker can do it today, because tomorrow, for whatever reason, you don't want him or her to continue to attempt to complete the transaction. This instruction is known as a day order. The vast majority of all transactions is done as day orders, partly because, unless the investor specifies that the order should remain open longer, it is assumed to be a day order. Another reason for the preference of day orders is that most people want their transactions performed now, not in the future, because of such factors as market volatility and price fluctuation.

Investors do have the option, however, to keep their order open longer by specifying how long they want the broker to continue to attempt to complete the transaction. The length of time may depend on many factors, such as the lack of availability of the stock or the investor's belief that the price of the stock is about to change. When the order is placed, the investor gives a time limit, or time notation. These time notations include

GTW.

G ood T hrough the W eek means that the order will remain open until the closing time of the last trading day or session of the week.

GTM.

G ood T hrough the M onth means that the order will remain open until the closing time of the last trading day or session of the month.

GTC.

G ood un T il C anceled means that the order will remain open until the investor instructs the broker to cancel it.

Plain English

A time notation is an instruction to a broker specifying how long an order to purchase or sell stock should remain in effect.

No, I don't know why the last one isn't GUC instead of GTC; it just is. To further confuse the situation, GTC orders are also known as open orders. This simply means that the order is open until the investor closes , or cancels, it. That's not so confusing.

Consider Price

Next, you have to tell the broker how much you want to pay for the purchase, or at what price you are willing to sell the stock. This is done by giving one of the following orders:

Market orders
Limit orders
Stop orders

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