What Are Orders: Market Orders (Part 2)

What Are Orders: Market Orders (Part 2)

What are Orders: Market Orders (Part 2) 

It is recommended that you read What are Orders? (Part 1) to understand the concept/definitions of orders before reading this post.

What is a Market Order ?

This is the fastest order an investor can place to buy or sell a security. When this order is placed, the investor will quickly buy/sell the security for the best possible price that the other investors are offering (If the investor is buying the security, they will buy it for the lowest price that was offered by the owner of the shares AKA the Ask Price. If the investor is selling the security, they will sell it for the highest price that was being offered by another investor AKA the Bid Price). Because of this, Market Orders will always be executed and cannot be cancelled if placed during regular trading hours. 

The main purpose of this order is speed, the investor wants to buy/sell the security as fast as possible no matter the price. Unlike other orders the investor does not have a choice on the price that is determined when the security is bought or sold. They will only find out after the order has been executed. In many cases they may find out that they bought/sold the security for more/less than they expected depending on the security’s volatility. 

Advantage of Market Orders: 

  • Orders are executed quickly, allowing traders to buy/sell their security without worrying if the order doesn’t go through (as long as there are willing buyers and sellers of that security 

Disadvantage of Market Orders: 

  • Prices from trading the security may not be what the trader was expecting (especially if the security’s prices are volatile) 

  • Unlike other orders, Market Orders cannot be modified meaning that the trader’s decision regarding this order will have to be final before doing through with it 

Example of a Market Order:

A trader sees a stock listed at a price of $150 per share and wants to buy the share a quickly as possible because he predicts the stock will rise rapidly in value. The ask price for the stock is $153 and the trader places a market order to buy 10 shares. When the order is executed, the trader noticed that he paid $156 for each share instead of the $153 he originally anticipated, therefore he paid an extra $30 to buy these shares ([$156 – $153] X 10 Shares = $30 OR $1,560 – $1,530 = $30). This is an example of a trader receiving a stock for a price that is slightly higher than he anticipated. 

Start trading like a professional

Royal West Indies Brokers gives you access to the best online trading platforms. We have selected the best platforms that are used for professional trading. At RWIB we offer you a personal trading platform, which is easy to use for beginners and professional traders. With the click of a mouse you can start buying and selling stocks, options, futures and more on the world’s largest exchanges. Start trading like a professional. Open a trading account today.  
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Competitive pricing

  • US Stocks from $7.50
  • Options from €2.00
  • No custody or service fee

Professional trade tools

  • Stable and reliable trading platform
  • Comprehensive technical indicators and trading tools
  • 60 different order types

Worldwide investing

  • 100+ exchanges
  • 24 countries
  • Europe, America, Asia and Australia

Training

  • Regular webinars
  • Training sessions in our offices
  • Documentation on trading
What Are Orders (Part 1)

What Are Orders (Part 1)

What are Orders? (Part 1) 

Buying/selling a security does not occur without this step happening first, the trader must first place what is called an order if they want to purchase/sell a security under specified conditions. From there, another trader must decide if they will buy/sell the security from you. Similar to how you order food at a restaurant, you must place an order for a meal, wait a certain amount of time for your meal to arrive, and then pay after you finished eating. If there is no waiter to take your order or your meal takes too long that you decide to leave the restaurant, then the order is effectively incomplete. You don’t pay any money and your stomach is still empty. This is exactly how securities trade in the market, you will not buy/sell the security if no one takes your order or if you think the order is taking too long and you decide to cancel it. 

Whether your order will be executed or not is determined on the bid/ask price. The bid price is the highest price that a bidder/buyer is willing to pay to buy the security. The ask price is the lowest price that an asker/seller is willing to take to sell the security. These prices help investors determine an appropriate price for which they can trade their securities at the best possible outcome. Take for example a stock with a bid price of $95 USD and an ask price of $105 USD, bidders will not pay more than what askers are selling the security for ($105 USD) and askers will not sell for less than what the bidders are buying the security for ($95 USD). 

How Long Can Orders Take Before They Are Executed? 

The lengths of the orders are dependent on the order type that is used and the length of time the investor wants the order to remain active. If a market order is used, it will take a few seconds before the order is executed. Other orders have specific options for how long/when they can be active. The first option is called the Time-In-Force. This option allows the investor to choose how long the order should remain active. The two main Time-In-Forces include: 

  • Day: When the order is placed, the order remains active until the end of the trading day for the respective stock market (Stock markets in the U.S. close at 4:00pm EST). The order is cancelled if it has not been executed by the time the stock market closes. 

  • Good-Till-Cancel: When the order is placed the order remains active until the investor decided to cancel the order themselves. Despite its namesake, the order will automatically cancel if the order is active for 3 months. 

The second option is having the order active outside of Regular Trading Hours. Normally if an order is placed, it will only be active during Regular Trading Hours (Mondays through Fridays, 9:30am to 4:00pm EST for U.S. Stock Markets), the order will not be active outside of those times and therefore will not be executed even if the price is reached by the amount set by the investor. An investor can bypass this situation by allowing orders to remain active outside of Regular Trading Hours, that way they can have their orders executed when the stock market is closed. (Between 4:00am – 9:30am EST and between 4:00pm – 8:00pm EST for U.S. stock markets). 

Note that there are some securities that do not allow trading outside of Regular Trading Hours. For example: stock options are only allowed to be traded during Regular Trading Hours. 

Modifying/Canceling Orders 

Orders (except for Market Orders during regular trading hours) can be modified/cancelled at any time by the investor as long as the order has not been executed. The order can be altered through the following ways: 

  • The Order Type used 

  • The quantity of stock to be purchased/sold 

  • The price of the stock to be purchased/sold (Non-market orders) 

  • The Time-In-Force 

  • Having the order active after Regular Trading Hours (RTH) 

There are multiple reasons for why an investor may modify/cancel an order: 

  • The investor changes their mind about the order 

  • The security moved in an unfavorable direction to the investor that forces them to change/cancel their order 

  • The order was/became unrealistic 

  • The order was incorrect/had a mistake 

Start trading like a professional

Royal West Indies Brokers gives you access to the best online trading platforms. We have selected the best platforms that are used for professional trading. At RWIB we offer you a personal trading platform, which is easy to use for beginners and professional traders. With the click of a mouse you can start buying and selling stocks, options, futures and more on the world’s largest exchanges. Start trading like a professional. Open a trading account today.  
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Competitive pricing

  • US Stocks from $7.50
  • Options from €2.00
  • No custody or service fee

Professional trade tools

  • Stable and reliable trading platform
  • Comprehensive technical indicators and trading tools
  • 60 different order types

Worldwide investing

  • 100+ exchanges
  • 24 countries
  • Europe, America, Asia and Australia

Training

  • Regular webinars
  • Training sessions in our offices
  • Documentation on trading
What are Index Funds/ETFs?

What are Index Funds/ETFs?

Index Funds and Exchange Traded Fund (ETFs) 

Buying and holding a stock in a particular company always has some form of risk involvedOne of the biggest risks is that the investment relies on the performance of the company for it to gain profits. Should the company perform poorly financially, suffer from negative press, or other events that will harm them, their investors may lose value in their stock investment. One way to mitigate these risks would be to diversify the investor’s portfolio by buying other stocks to balance out any potential losses that may come from investing. However, this will cost more in terms of transaction/commission fees and varying prices of each stock makes some of the stocks not affordable to many investors. How can an investor diversify their portfolio while avoiding any extra costs/paying for expensive stocks? They can instead trade in Index Funds or Exchange Traded Funds (ETFs) 

Index Funds 

Index funds are described as a basket of stocks, bonds, or other securities that is used to represent the performance of a market segment or index. They may only be bought/sold after the stock market is closed. 

ETFs 

ETFs are almost identical to Index Funds but with a key difference; they can be day-traded like a regular stock. In fact, some ETFs are used to track indexes the same way that index funds do, making them more valuable for active investors.

Examples of Index Funds/ETFs: 

  • Fidelity 500 Index Fund (FXAIX) 

  • SPDR S&P 500 ETF (SPY) 

  • SPDR Dow Jones Industrial Average (DIA) 

  • Invesco QQQ Trust (QQQ) 

Advantages 

  • Index funds/ETFs are diversified. they rely more on the performance of multiple stocks/securities instead of just one stock. 

  • In terms of transaction fees, Index Funds and ETFs charge less than if the investor were to buy multiple stocks for their portfolio 

  • Index funds/ETFs track the current state of the market in their respective fields. One can make a more informed decision when purchasing a stock based on the index funds’ current movements 

  • ETFs can be day-traded like regular stocks allowing you to profit/exit from a position at any time 

  • Some Index Funds/ETFs are cheaper than the stocks that are included in them 

  • Some Index Funds do not require a minimum investment, investors can therefore invest with whatever amount of funds they have 

Disadvantages 

  • Index funds/ETFs are not immune to market conditions that may affect a large quantity of companies (Example: The recent COVID-19 virus that cause almost every stock in the indexes to drop more than 5% in value) 

  • Some index funds require a minimum investment, with some minimums being as high as $10,000 

  • Some of the best ETFs in the market are expensive 

  • Index funds can only be bought or sold at the end of the trading day; they cannot be day traded 

  • Index funds/ETFs are not flexible compared to building your own investment portfolio from the stocks you choose. An index fund/ETF may also contain stock(s) that you dislike. 

Start trading like a professional

Royal West Indies Brokers gives you access to the best online trading platforms. We have selected the best platforms that are used for professional trading. At RWIB we offer you a personal trading platform, which is easy to use for beginners and professional traders. With the click of a mouse you can start buying and selling stocks, options, futures and more on the world’s largest exchanges. Start trading like a professional. Open a trading account today.  
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Competitive pricing

  • US Stocks from $7.50
  • Options from €2.00
  • No custody or service fee

Professional trade tools

  • Stable and reliable trading platform
  • Comprehensive technical indicators and trading tools
  • 60 different order types

Worldwide investing

  • 100+ exchanges
  • 24 countries
  • Europe, America, Asia and Australia

Training

  • Regular webinars
  • Training sessions in our offices
  • Documentation on trading
How To Start Trading in the Stock Market with $1,000

How To Start Trading in the Stock Market with $1,000

How to Start Trading in the Stock Market with $1,000 

Note: information from this post is only a guideline on how to trade with accounts that are funded with $1,000. All decisions regarding investments are to made by the investor and this blog post can not be regarded as investment advice in any way. 

Introduction 

New to investing in the stock market? Only have a limited amount of funds to invest with? No need to worry, there is still a way for you to enter the stock market and be able to make gains with only $1,000 in your account. However, be weary that it is difficult to gain substantial gains from a portfolio that has invested only $1,000. This is due to the following reasons: 

  • It is difficult to diversify your portfolio (buy more than 1 type of stock) with little funds, because each stock trade has a commission fee and the trade must be large enough that you are able to at least breakeven on commission. You may even be forced to put all of your funds in one stock to make a noticeable return. 

  • Most stable stocks (listed in the S&P 500 or Dow Jones 30 for example) are expensive and it could take months or even years before you breakeven or see a substantial return unless you buy more of that specific stock 

  • While there are stocks that cost less than a dollar (penny stocks) and are easier to make profits from if you buy enough shares, they are riskier because most of these companies are speculative. This can result in losses.

Adding more funds to your account either one-time or on a monthly basis can help improve your odds on making a substantial return. 

Plan Your Moves/Goals 

When investing it is important to ask yourself questions on what your final goal is on the investment. The following questions should be considered: 

  • How long am I planning to hold this investment? 

  • How much am I willing to lose on this investment? 

  • My investment is making a profit, when should I sell? 

  • Did I do my research on this company? 

  • How much of my money should I put into this investment? 

Having a backup plan in case the investment does not go in the direction you wanted can help you manage your portfolio more properly and may even prevent you from losing too much on a bad investment. 

Buy More of a Stock per Trade 

Reminder, every time you make a trade, you a pay a commission fee to your broker.  With this knowledge, you need to be aware of how much stock you are purchasing at a specific price because the stock must rise a certain amount to breakeven on your investment. 

Take for example a stock that is worth $1 per share.  Let’s say you only buy 1 share. Why is this considered a bad investment? 

  • The stock itself is worth only $1 and you paid commission to buy that stock, the commission itself takes up a large part of your investment. In other words, you paid commission for a stock that is only worth $1 

  • You will have to pay commission to sell your stock.

  • Taking this into consideration, your stock will have to rise considerably for your investment to break even on commission! 

  • Because stocks that are worth $1 typically changes a few cents on a regular trading day, you may have to hold your investment for years to make a profit.

Now let’s say you buy the same $1 stock, only this time you buy 400 shares. Why is this a better investment than the previous one? 

  • The entire investment is worth $400 + the commission fee. The commission itself only takes up a small part of the investment. In other words, you paid much less per share than for the one stock bought in the previous scenario 

  • The stock will only have to rise a few cents for your investment to break even on commission and make a profit

  • Again, since stocks that are worth $1 usually change a few cents per day, this investment makes more sense because not only will you be able to break even more easily on commission, you will also be able to make a profit. You also may not need to hold the investment as long to realize a profit 

As you can see, buying more stock is beneficial for the chance to earn returns while also breaking even on commission. 

Consider Trading Options

Opposed to stocks, options are an alternative way to make money on investments. Click here to learn more about options. Options can net larger returns compared to stocks but may also lead to losses if the investment goes poorly. Also, options have an expiration date that deem them worthless upon passing of that date. If you are willing to take the risk of making larger profits at the expense of potential making  losses, consider options as a means of investing. (Note: Options may not be available to purchases on your account depending on the circumstances) 

Preview Your Orders 

It is important to preview your orders to understand how much the trade is going to cost. You don’t want to find out after the fact that the trade you made is not up to your liking. Review the data such as the total cost, commissions, how much the stock needs to rise to break-even on the investment, or how much profit/losses you will make before confirming the trade. RWIBrokers.com profides the possibility to preview your trades before sending them to the markets.

Start trading like a professional

Royal West Indies Brokers gives you access to the best online trading platforms. We have selected the best platforms that are used for professional trading. At RWIB we offer you a personal trading platform, which is easy to use for beginners and professional traders. With the click of a mouse you can start buying and selling stocks, options, futures and more on the world’s largest exchanges. Start trading like a professional. Open a trading account today.  
  • Loading stock data...

Competitive pricing

  • US Stocks from $7.50
  • Options from €2.00
  • No custody or service fee

Professional trade tools

  • Stable and reliable trading platform
  • Comprehensive technical indicators and trading tools
  • 60 different order types

Worldwide investing

  • 100+ exchanges
  • 24 countries
  • Europe, America, Asia and Australia

Training

  • Regular webinars
  • Training sessions in our offices
  • Documentation on trading