I think one thing beginning investors are afraid of is actually how to buy or sell shares in a stock. I mean it sounds complicated right? You have weird “wall street” terminology like limits, stop losses, or tickers.

Midway through college I set up a brokerage account with Scottrade and funded it with a large sum of $1,000. I had read a few investing books from the likes of investing legends such as Ben Graham and Phil Fisher. I was even majoring in accounting and finance.

The funny thing is that none of the classes I took (or even the investing books I read) discussed how to execute a trade on a stock. I had to learn by myself, which was kind of scary! The last thing you want to do is really screw up on a trade!

The Wonders of The Internet

It’s wonderful to think about how far technology has come over the past few decades. Back in the day, people actually had to call their brokers over the phone to execute a trade. Sounds kind of inconvenient right? Luckily I never lived through those days!

In today’s world, everyone that has access to a computer and internet can execute a trade. Online trade execution is great because it provides added convenience and significantly lowered the cost of trading. I’m still surprised that some people insist on calling their broker over the phone to execute a trade!

If you execute a “dealer-assisted trade” over the phone, it could easily cost $50+. If you did it yourself online, it would only cost $6 – $8!

Here are a few basics tips I picked up over the years:

Trading Hours

The stock market in the US is open during regular hours between 9:30 AM to 4:00 PM Eastern Standard Time. That is when you have the opportunity to actually put a trade in place. Some brokerage accounts allow for after-hour trading, but not all.

Ticker Symbol

A ticker symbol is just an abbreviation used to uniquely identify a stock when executing a trade. In the U.S. they typically consist of 3 – 4 letters. As a fun fact, in certain countries ticker symbols are actually numbers (like in Hong Kong).

You must know the company’s ticker symbol before you can buy or sell a stock. Don’t worry, looking up a ticker symbol is actually very easy; companies design them to be easily remembered. Just go to Google Finance and type in the name of the company you are looking for. It should pop up as one of the first companies on the list. The ticker symbol will be on the far left side of the bar.

Placing A Trade

When you log into your brokerage account, you want to log into your trading page. Type in the ticker symbol you want to trade (I used Apple-AAPL in this example).

Before buying or selling a stock, be sure to check out what price it is trading for. There are two things you’ll want to look for: the bid and the ask prices.

The bid price is the maximum price buyers are willing to pay for a stock. Conversely, the ask price is the minimum price sellers are willing to sell their shares for.

After selecting the amount of shares you want to buy (or sell), you may notice there is a whole list of various order types you can choose from. This is where some people get confused (including me when I first started). Don’t worry, the terminology will be very easy to understand with some practice.

Unless you’re going to be a day trader (which I do not recommend),  you’ll only need to understand a few basic trade types.

Market Order

A market order means you are telling your broker to buy (or sell) shares in a company at the best current available price (in other words the current “market price”). When you place a market order, your trade will typically be filled (completed) very quickly.

Only use market orders for securities that are highly liquid. And by liquid, I mean that they trade a lot. If a stock only trades a few thousand times a day, it would likely be a wiser choice to use a limit order (discussed next).

Limit Order

A limit order is a specific trade where you instruct your broker to only buy or sell shares at a certain specified price. Limit orders are great because you know exactly what price you’ll pay for the stock (or what price you’ll sell for).

Limit orders are typically used for less illiquid stocks (companies that trade on very low volume). That way you ensure you get a good deal on the trade. Keep in mind that limit orders do not guarantee that you will get all the shares you specified in the order–this can occur if the brokerage cannot find shares at the price you specified in the trade.

When you select a limit order, there are a few more options you can select from. First, is the time period where the trade will be active. If you place a limit order to buy a stock that is below the current stock price, the order will not fill until the stock declines to that level. As a result, some people like to keep the trade active by setting an expiration for the order. At Fidelity, they let you keep a limit order active for 6 months.

The other thing you need to consider is if you want an “all or nothing” restriction on your limit order. As I noted before, sometimes you might not get all of the shares in your order because there may be no interest at your limit price.

This is where an “all or nothing” restriction may be useful. This instructs your broker to ONLY fill the trade if they can get you all the shares you specified. For instance, if there is someone trying to sell 50 shares of Google at $800 a share, but you have an all or nothing limit order of 100 shares at $750 a share, your trade will not go through.

Stop Loss Order

A stop loss order is typically used to limit the losses of a particular investment. Under a stop loss order, your broker will sell (or buy) the stock after a specific price level has been reached. 

Say for example Apple is trading for $120 a share right now and you want to limit your losses on the investment. You could set a stop loss order at $105. So if Apple’s stock declines to the stop price level, your broker will then automatically sell the shares at the prevailing market price. 

Like the limit order, you can set a stop loss order to be ‘active’ over a period of time.

And there you have it! Those are three of the most common trades 95% of people will ever use in their lives. Personally, I only really use market orders or limit orders. Hopefully this demystifies the mechanics of how to buy or sell shares for readers.

Readers, do you think I missed anything? Was anyone else also a little scared about placing their very first trade on a stock or ETF back in the day? Let me know in the comments!