Lesson 34: How to Buy and Sell Your Stocks (Best Brokers, Order Types, and More)

So far in Level 4 and Level 5 we’ve covered how to find the best companies to buy and when to buy and sell your stocks. Now, let’s look at how to actually place a trade.

Below are some common questions we see come up for new investors. And based on your questions, we’ll keep adding to this list over time.

If there’s anything you’d like to see added here, don’t hesitate to reach out and let us know. 

Which is the best brokerage for stock investing?

When it comes to picking the best brokerage, the truth is that there are several good choices.

In our experience, we think picking the best broker comes down to three main factors:

  1. Low trading commissions
  2. Good website and mobile app
  3. Helpful customer service

The era of high trading costs is gone. At this point, most brokerages charge just $5 – $7 per trade, and some are completely free. We wouldn’t bank with anyone charging more than $7 per trade.

Trading commissions are especially important if you’re starting off with a relatively small amount of investment money. In that case, trading fees can eat into your profits.

Robinhood stands out as the disruptive startup in the space, since they don’t charge any trading commissions. This is from their website:

“Investing with Robinhood is commission free, now and forever. We don’t charge you fees to open your account, to maintain your account, or to transfer funds to your account.”

They were built first as a mobile app, but they also have a website where you can research stocks and place trades.

That brings us to our second point: 

Whatever brokerage you go with should have a good website and mobile app.

Nowadays, investors want the ability to research stocks, place trades, and track their investments all online.

While some investors still prefer using the website for their investment activity, it’s nice to at least have the option to place trades on the mobile app. If you’re on the go, traveling on vacation, or lying awake in bed, having access to your investments on your phone can be a big help.

Finally, we think the third major factor you should consider is helpful customer service. In our experience, investing can sometimes be complex.

Whether it’s a tax question, moving retirement money, or changes in investing laws, it’s nice to be able to pick up the phone and speak to someone at your brokerage who is well informed and eager to help.

Based on those criteria, we’d recommend exploring the following brokerages:

Fidelity, TD Ameritrade, Charles Schwab, and E*TRADE are all the classic big boys in the space.

They all offer a mobile app, website, customer service phone support, many account types, and good stock research tools. Each has their strengths and weaknesses (more on that below), but many successful investors use each of these.

Interactive Brokers caters more towards active investors and professional traders. Their trading fees tend to be lower than the mainstream brokerages above, but they’re also a bit less friendly for a beginner investor.

Robinhood offers simple web and mobile app trading with no fees, but they have limited account types and customer support.

Since brokerage rankings and reviews change every single year, we assembled the best rankings below for you to browse and narrow your options:

  1. NerdWallet’s Best Online Stock Brokers for Beginners
  2. StockBrokers Best Online Stock Brokers
  3. Investopedia Best Online Stock Brokers for Stock Trading
  4. The Balance: 8 Best Online Stock Brokers to Use
  5. Bankrate Best Online Brokers for Stocks

Each investor has different needs and goals. By exploring the three important criteria above and browsing the latest rankings, you should be able to find the brokerage that’s best for you. 

When can I place stock trades?

The U.S. stock market is open Monday through Friday from 9:30am to 4:00pm EST (excluding holidays).

You can place trades for immediate execution anytime the market is open.

In addition, you can place trades anytime you want (even if the market is closed), and they will sit, ready to execute, once the market opens.

For example, if you place a buy order for a stock on Saturday night, it will be ready to execute Monday morning at 9:30am EST.

Finally, many brokers offer “after hours trading” or “extended hours trading.” This allows you to place trades before the market opens and after it closes. However, volume can be very low during these periods since most investors place their trades during market hours.

What type of account should I trade it?

In general, frequent trades that will result in booking profits in under a year (qualifying as a short-term capital gain) are best traded in tax-advantaged accounts, such as IRAs.

Because taxes on short-term capital gains are usually much higher than on long-term capital gains, if you expect to book many short-term profits, a tax-free account will allow you to compound those returns quickly without losing any money to the tax man.

On the other hand, if you’re trading slower, more long-term strategies (for example, deep value investing), you may want to place those trades in a regular taxable brokerage account.

Since those gains are likely to be realized over a period longer than one year, they would be taxed at the lower long-term capital gains rate.

Each investor’s situation is different and this would be a good topic to discuss with a financial or tax advisor.

What are the different order types?

When it comes to actually placing a trade, many investors wonder what type of order they should place.

In our experience, there are two main order types that investors use most: market orders and limit orders.

Let’s look at each in detail.

A market order means you’re willing to buy or sell your desired quantity of shares at the next available market price.

When trading popular stocks, such as Apple (AAPL), there’s such large trading volume that the last price shown by your brokerage is usually pretty close to what you’ll get for a market price.

However, when trading low volume stocks, especially small cap stocks, the price can move all over the place. If you choose a market order for a small cap stock, you may find that it executes at a price that’s pretty different than the most recent price shown by your broker.

Because of this, many investors choose to use limit orders when buying small cap stocks.

A limit order will only execute when the stock reaches the price you specify, or better.

When selling your shares using a limit order, you’re essentially saying:

  • “I want to sell my 100 shares, but I won’t accept anything LESS than $10 per share.”
  • In that case, you’re selling 100 shares with a limit order of $10 per share (the minimum you’ll accept).

Or, if you’re buying stock using a limit order, you’re essentially saying,

  • “I want to buy 100 shares, but I won’t pay anything MORE than $10 per share.”
  • In that case, you’re buying 100 shares with a limit order of $10 per share (the maximum you’ll pay).

In both cases above, you’ll also accept better prices than your limit. So with a limit buy order of $10, you’ll happily pay $9.50 for the stock. And with a limit sell order of $10 you’ll happily accept $10.50 for the stock.

Limit orders have several benefits over market orders. They can:

  • Protect you from overpaying for a stock or accepting too little when selling.
  • Allow you to set your ideal limit price in the morning and then go about your business for the day. If your price is met, the order will automatically execute. If not, it will either be cancelled at market close or stay open until it eventually executes (you can choose which when you set the limit order).
  • Help you fish for the best possible price. Rather than having to sit and watch the market all day long, you set your ideal price and sometimes the order will execute based on a sudden spike (or drop) in price that you never could’ve caught using a market order.
  • Allow you to set a maximum for how much of a stock you’re going to buy. For example, if you buy 100 shares with a limit of $10, you know you will buy a maximum of $1,000 worth of the stock if the order executes. If you were to use a market order instead, your order for 100 shares might have executed at $10.25 (or something even further above $10), meaning your position is now larger than the $1,000 you intended.

The downside of limit orders is when they don’t execute because your limit was too strict. If you set a limit order to buy 100 shares at $10 per share, but the stock trades only as low as $10.05 for the day, your order won’t execute.

Sometimes investors using limit orders will kick themselves for being too strict with their limit price, causing them to just barely miss out on buying or selling a stock.

Similarly, it’s possible for the limit order to only be met for some of your shares, but not all. If there are only 50 shares available for trade at your limit specifications, it’s possible that 50 shares of your order will execute and 50 will not. However, this is rare and you can usually adjust the settings around this when you place your order.

The bottom line is if you decide to use a limit order, make sure not to be too strict with your limit price if you really want the order to execute.

The only other common order type is a “stop-loss order.” This allows you to set a specific loss threshold at which point you’ll automatically sell the stock.

For example, if you buy Amazon (AMZN) shares for $1,591, you can set a stop loss for 10% below your purchase price, at which point the shares will automatically sell off.

In general, we don’t use many stop-loss orders. While they can be good protection against highly volatile stocks, we’ve found it’s better to buy high-quality companies and make deliberate, research-based trade decisions if the stock moves up or down substantially.

While there are other, more complex, order types, market and limit are the main strategies most investors use to buy and sell their stocks.

Lesson Summary: How to Buy and Sell Your Stocks

In today’s lesson, we covered common questions about the best brokers, account types, and order types for investors. 

Your personal situation will greatly influence your decisions, and there’s no “one size fits all” for all investors. 

Here are the most important takeaways from today’s lesson:

  • In our experience, picking the best broker comes down to low trading commissions, good website and mobile app, and helpful customer service.
  • Trading commissions are especially important if you’re starting off with a relatively small amount of investment money. In that case, trading fees can eat into your profits.
  • Whatever brokerage you go with should have a good website and mobile app.
  • The U.S. stock market is open Monday through Friday from 9:30am to 4:00pm EST (excluding holidays).
  • You can place trades anytime you want (even if the market is closed), and they will sit, ready to execute, once the market opens.
  • In general, frequent trades that will result in booking profits in under a year (qualifying as a short-term capital gain) are best traded in tax-advantaged accounts, such as IRAs.
  • If you’re trading slower, more long-term strategies (for example, deep value investing), you may want to place those trades in a regular taxable brokerage account.
  • A market order means you’re willing to buy or sell your desired quantity of shares at the next available market price.
  • A limit order will only execute when the stock reaches the price you specify, or better.
  • The bottom line is if you decide to use a limit order, make sure not to be too strict with your limit price if you really want the order to execute.
Author

Todd Lincoln

Author

Passionate stock market investor with deep experience trading small cap, dividend, and growth stocks.

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