NEW YORK ( TheStreet) -- What's the difference between a market order and a limit order? What does "buy to cover" mean? Understanding how to pull off your first trade can be a little intimidating (and confusing). Let's say you've done your stock homework, you think you've found a winner, and now you're dying to put your new brokerage account to good use and start trading, but you're not quite sure how to do it. Sounds like you might need a little lesson in executing that first trade.
Let's get started.
Trade "execution" is just a fancy way of referring to a transaction. When you buy or sell stock, you're executing a trade. To "trade," in investing lingo, usually refers to a particular type of investing strategy, so qualifying your use of the term "trade" with the word "execute" lets other investors know that you're talking about a specific transaction.
How Long Does Execution Take?
The actual time it takes to execute your trade can vary from broker to broker and market to market. Generally speaking, trades are, in essence, instant. As a typical investor, you won't notice a particularly perceptible or painful price difference in the time between placing your order and its execution. (The SEC requires that all brokerage firms provide documentation quarterly to the public about the routing of their client orders. These reports are available from the SEC or from your broker.)When you do place your order, your broker will most likely route your order through their complex trading computer network to get a hold of your shares. In some cases, your order will never leave the broker -- your brokerage firm might want to clear out shares of the company you're buying from its inventory.
How Do You Want to Trade?You've got a few options when it comes to trading stocks. Buying and selling are the obvious choices. But there are other ways to trade, too: selling short and buying to cover. Selling short can be done when you have a margin account with your broker. Essentially, you borrow shares of a particular stock and sell them, hoping that the stock will depreciate in value, leaving the difference between the selling price and eventual repurchase price in your pocket. Buying to cover is the term for that eventual repurchase; it closes out a "short position" in a stock. But since we're talking about your first trade here, it makes sense to focus on buying stocks. Besides, selling short and buying to cover are more advanced investing topics that you'll definitely want to avoid until you're ready (
5 Ways to Place Your Stock OrderThere are five different types of stock orders that your broker will likely let you use. They are:
- Market Order
- Limit Order
- Stop Order
- Stop-Limit Order
- Trailing Stop Order