Buying And Selling Stock

In order to buy or sell stock, an investor must place an order to do so through an online brokerage platform or by calling the brokerage firm on the phone. An order represents an advertisement of intent to buy or sell a specific stock.  Each order is unique and has identifying characteristics relating to price, quantity, and conditions.  An order is considered to be “opened” or “pending” until it is finally executed and completed.  The five conditions that need to be specified in an order are:

1. Side – Is it an order to buy or sell stock.
2. Size – How many shares are to be bought or sold.
3. Route/Destination – Is the stock a NYSE listed company, NASDAQ listed, or is it OTC/Pink .
4. Ticker – The stock’s unique identification code composed of 1-4 letters.
5. Price – The price to buy or sell at.

I want to focus a bit on item number 5 as there are two kinds of pricings available.

• Market order: A market order is an order to buy or sell a stock at the currently best available price at the time of the order.  An investor that buys or sells a stock with a market order has no control over what price the order will be filled at as the price is determined by the open market. This order type will be the quickest to fill.
• Limit order: A limit order is an order that clearly specifies the price at which the transaction is to occur.  For example buy 100 shares of XYZ at $35.90 is a limit order since a price is specified.  Once a limit order is entered in to the system it remains pending until the price of the stock matches the price specified in the limit order.

An investor that has purchased a stock has entered what is known as a “long position”.  An investor that has sold short a stock has entered what is known as a “short position”.  When an investor does not have a long or short position this is known in trading jargon to be “flat”.  Every time the price of the stock changes this incurs an “unrealized profit” or “unrealized loss” which represents a realistic view of how much profit or loss would be made if the position were to be closed at that time.  Once you are flat the unrealized profit or loss becomes a “realized profit or loss”.