Brokers and Online Trading: Accounts And Orders
Types of Accounts
Depending on what type of securities you hold, there are four major choices you have when opening an account:
Cash Account: The basic account where you deposit cash to buy stocks, bonds, mutual funds, etc.
IRA Account: For people looking to set up an individual retirement account.
Margin Account: Margin basically allows you to borrow from your broker against the cash and securities in your account. Profits can diminish quickly when you use margin, so be very careful! Learn about how this works in our Margin Trading Tutorial.
Option Account: Only seasoned investors should consider this choice. This type of account allows you to trade options, which are much riskier investments than stocks or bonds.
If you already have a brokerage account and wish to move it to another broker the process is quite easy. Just contact the brokerage you are signing up with and they will either do the paperwork for you or help you with the proper forms.
I'm ready to trade, now what?
In order to make your trade you have to be specific about how you want the transaction to be performed. The following are common order types you'll encounter when placing an equity order using an online interface or the phone:
Market Order: An order that requires immediate execution at the best price available. These are generally the cheapest trades to place because there is little work or maintenance required by the broker.
Limit Order: An order to transact at a specified price. This guarantees the price at which you will buy or sell a security. Limit orders are usually more expensive than market orders.
Stop Order: A market order that trades after a specified level has been reached. This may be a stop-loss or stop-limit. The exact price cannot be guaranteed, but this can be a good way to protect your downside.
All or None (AON): A stipulation on a limit order either to buy or sell a security only if the broker can fill the entire order, not part of it.
Day Order: An order that expires at the end of the business day if it has not been filled.
Good Till Canceled (GTC):An order either to buy or to sell a security that remains in effect until the customer cancels it or until it is executed by the broker.
Fill-Or-Kill: An order for immediate execution. If it cannot be filled immediately the order is automatically canceled.
Short Sale: Short selling is an advanced investing technique in which stock is borrowed and sold with the hopes of returning the stock at a lower price.
Buy to Cover: An order placed to close out a short position.
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