Below is a sample of the major orders used to buy and sell common shares. Specifically, we have identified a number of orders that can be particularly useful when purchasing Small-Cap companies. Why the difference with Small-Caps? Well, in the case of most Mid - to Large-Capitalization companies (companies like Bombardier or Gillette), daily trading volume is high and the spread between the bid and ask are low. This tends to create a liquid market, where the transactions of most individual investors have little impact on the current stock price. However, in the case of certain Small-Cap companies the opposite may be true. Indeed, for a number of reasons, including the limited amount of public shares available and a lack of company awareness, some Small-Caps tend to be fairly illiquid or thinly traded (small numbers of both buyers and sellers). As a result, investors are often subject to price risk when buying and selling these companies. To alleviate this risk, we recommend that you use patience and the order tools specified below.
An order to buy or sell a specified number of shares at the best available market price. In most cases, all orders not bearing a specific price are considered At The Market, which normally means paying the current market offer price when buying or accepting the current market price when selling. Situation: Use when market for the stock is liquid or you expect to see an immediate rise in the share price.
An order in which you, the investor, set a specific price at which the transaction may be executed--or a better price if the trader can obtain it. Situation: Use when the market for the stock is illiquid and the stock is thinly traded. Place your buy or sell order at a price (usually within 10% of our recommended price) you feel is fair and be patient. It may take a day or two, but in most cases your patience will be rewarded and your order will get filled. This strategy will prevent you from chasing and possibly overpaying for a stock.
This is a variation of a Limit Order in which you permit the trader some price discretion in executing your transaction.
An order to buy or sell that is valid for the day. All orders are usually considered to be Day Orders unless otherwise specified.
This order is usually at a specified price and remains on your investment dealers books until the order is executed or canceled (max. 30 days). Situation: Use in tandem with a Market Order placed on an illiquid company to avoid the annoyance of replacing your order daily.
An order in which the trader is restricted to executing the total number of shares specified on the order at one time or none at all. For example, if your order is to purchase 1000 shares of Company XYZ at $1.00 and there are only 500 shares available at $1.00, you will not get a partial fill (500 shares). Many investors use this order to prevent the acceptance of partial fills and avoid paying multiple commissions on separate fills days.
An Any Part Order is the direct opposite of an All or None Order. Under this order, you agree to accept as much stock as can be obtained up to the full amount of your order.
This is an order to sell shares you already own which effectively becomes a Market Order when the price of a board lot of stock trades at or below your stated limit (stop) price. Situation: Investors use this type of order in two common situations: to try to reduce the amount of loss that might be incurred or to protect at least part of a paper profit. In the case of the former strategy an investor in Company XYZ ($1.00) may only be willing to lose 20% of the initial investment and therefore set a Stop Loss Order at $0.80. Whereas, the latter strategy can be applied to a situation in which one has purchased shares in XYZ Company which have subsequently appreciated to the $1.50 level. As a result you may wish to "lock in" at least a 30% profit and therefore set a Stop at $1.30. Having said this, we caution the use of Stops in some Small-Cap companies which can fluctuate 15-20% weekly, consequently investors can get stopped out of a stock too easily and miss out on future gains.
This order is identical to the Stop Loss Order except for the fact that it becomes effective as a Limit as opposed to a Market Order.
A Short Sell Order involves selling a security that you do not own with the intention of buying the security back at a lower price at some later date. The intended profit results from the spread. For a number of reasons many consider this a highly speculative practice. As opposed to holding a long position where an investor's potential loss is limited to the amount initially invested (except when one uses margin), a short seller's potential loss is theoretically unlimited. This is because there is a limit (100%) to the percentage a stock's value can drop, however there is no such ceiling on the percentage a stock can increase. If an investor sells a stock short, or bets on a price decline, there is always the possibility that the shares could suddenly appreciate at a tremendous rate, leaving the short seller with a huge loss when he or she finally repurchases the shares at a substantially higher price.