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Article Series:
Learn Stock Market Trading Tips
What
Are Stock Market Orders?
A
market order is simply instruction given to you from your
broker as to whether you should buy or sell
a certain stock at that very moment for the best price possible. Because a market order guarantees execution, either buying
or selling stock, it offers brokers low commissions because
of the minimal work that is involved. You have to be careful
with market orders on stocks that have a low daily volume,
meaning that a certain stock does not increase very much daily,
therefore, when you sell it, the profit that you gain, if any,
would not match that of what you, in fact, bought each stock
for. Therefore, you should feel more secure using a market
order on stocks such as Microsoft that steadily increase on
a daily basis.
As with all orders, there are advantages
and disadvantages to the market order. Focusing on one specific advantage, you
are virtually guaranteed that your order will be executed,
pending that there are willing buyers and sellers available
who are interested in your particular stock. For example, you
own 100 shares of stock from Borden, a dairy product provider,
from which you have received a steady increase in profits.
You broker, however, informs you that it would be a wise decision
to sell those 100 stocks in Borden in order to purchase stocks
from Wal-Mart because those stocks are producing 47% higher
profits than the stocks from Borden. Your broker also informs
you that there are several people available who would like
to buy your stocks in Borden, so you must make the decision
immediately as to whether you would like to sell your stocks.
You agree due to the higher percentage in profit that Wal-Mart
stocks provide, and immediately your stocks are sold due to
the fact that people are waiting to purchase them.
A
main disadvantage with a market order is that the price
you pay when the actual purchase transaction takes place may
not be the initial quote that was given to you by your broker.
For example, your broker contacts you and says that Microsoft
Corporation is offering a tremendous deal on their stocks in
which you are able to purchase one share of stock for $25.00.
You quickly agree to purchase 100 shares of stock and before
the broker has time to put the order into the computer, the
price of the Microsoft stock has increased to $50.00 per share.
Rather than contacting you about the cheap price of Microsoft
stocks, your trusted broker should have simply purchased the
stock at the moment to ensure that you would receive the lower
purchasing price. So, it is typically better, when you invest
in larger corporations to have your broker instantaneously
make decisions that will gain profit for you in the long-run.
That being said, the
absolute best time to execute a market order is when low
volumes of shares from a particular company
are not gaining any profit, pending that people are waiting
to buy that particular company's shares of stock. For instance,
you own 10 shares of stock in Best Buy, an electronics company,
but you don't feel that you are gaining enough profit from
it. So, you contact your broker for a consultation. After the
consultation, you realize that if you sold your 10 shares of
stock from Best Buy and bought just 5 shares of stock in J.C.
Penny, a department store, your profits would increase by 39%.
Plus, there are eager buyers available to purchase your Best
Buy stocks for 25% more than you paid for them. (If you paid
$1500 per Best Buy share, people are currently waiting to buy
them for $1875. That's an $1875 profit that you could use to
purchase even more stock in J.C. Penny in order to increase
you earnings!) Just remember as with any stock market transaction,
there is a certain amount of risk involved.
Becoming more educated about exactly how the stock market
functions will help to reduce the amount of risk you take with
you stocks if you are the type of person who is not a risk
taker.
Market orders have great potential to work totally at your
advantage if you have a trust-worthy broker in which you secure
all your money transactions. As with any stock market transaction,
it takes a genuine relationship with your stockbroker to ensure
gains in profit as well as reduced stress about investing your
money into such a fluctuating financial market. # # # # # SolveYourProblem.com : 2007
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