Stock Trading Terms

When placing stock market orders

Stock trading terms that will get you started investing in the stock market are included here with a brief description of their meaning.


Stock Brokers

These are the people who you provide buying and selling instructions to and who handle the trades for you. They charge you brokerage for the service.

The two common types of brokers are online brokers and full-service brokers. To use the former, you need access to the internet and a trading account as well as doing your own research.

If you like the idea of talking about your trades and getting advice, then a full-service broker is for you.

Another type of broker is the discount broker who provides a basic service with lower prices.

They are commonly used by day traders who generally do a lot more buying and selling than value investors.


'At Market and 'At Limit" Orders

You have two options when placing an order with a broker. The order can be placed 'at market' which means that the broker will try to get the best price (lowest if buying, and highest if selling) determined by the market.

Alternatively, if placing an order 'at limit', you set the maximum buying price or the minimum selling price. However, the order will expire after a period of time if the broker is unable to fill your order within those limits you set.


Stock Liquidity

The stock trading term 'liquidity' refers to how many of the company's shares change hands each day. This determines how easily you can move in or out of a stock at the current price.

The more shares traded each day, the more liquid the stock. A stock's liquidity is related to its size. Smaller companies are more likely to be illiquid.

This can be of concern if there is a downturn in the market and you are trying to get out quickly. If there are few buyers then you could get caught.


Slippage

This refers to the situation where you place an order 'at market' and there are not enough shares available for sale at the price you would like to buy at and you are forced to pay more.

You can check the 'market depth' information on most online brokers sites to see how likely you order might get filled at your desired price. You will see what price the sellers are prepared to sell for and how many shares they are offering for sale.


Settlement

If you are using an online broker, your order will be placed within seconds of your pressing the buy or sell button. I am always impressed with this efficiency!

However,settlement of the order usually takes a few days after you executed the order. You need to have the money in your account at settlement otherwise your account may be closed.


To Conclude

These are the main stock trading terms relating to buying and selling shares. If you are using a value investing approach you will not be buying and selling on a regular basis. This has the advantage of minimizing brokerage fees.

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