Within the buy to cover orders, there are 4 options in which to place onto your stock purchases. When you buy to cover on a market order, you are in agreement that you will purchase the stock at the current market price, however, because there is a lag between the time you agree to purchase the stock and the actual transaction, a price difference could occur. You could end up paying more than anticipated for each stock, or a considerably lower amount per stock, which is what you are hoping for. You can also buy to cover limit orders, in which guarantees that you will pay no more than the set limit price. However, if stock prices stay above the limit price, this type of buy to cover order will never be executed.
This type of transaction is typically used by investors who are trying to get into a certain market. You may also want to buy to cover stop orders in such case the stop orders become simple market orders as soon as the price is at or above the stop price. This type of order should be used to get you out of an unfavorable market so that you will not lose any profits. And, last, you may choose to buy to cover a limit order that converts to limit order only when the market price is at or above the stop price. You must become familiar with each of the buy to cover orders so that you can make educated decisions about your investments.
From one decision period to the next in the stock market game, the market moves up and down non-stop, meaning that prices of stocks are at a constant changing point. You may think about purchasing a certain stock at $65 per share, and in the next second, the price per share has risen to $165 per share.
This is where the gambling of the stock market comes into play. By learning the advantages of the buy to cover orders, you can increase your chances of earning money on the stock exchange instead of losing money. The most obvious advantage to all of the buy to cover options is that they are in place to make you money, when executed properly.
For example, you would not execute a stop loss on a stock that has steadily increased over a 4 month period. If you did this, you would force yourself to waste money to buy the stock in order to cover your mistake. You decide to buy 175 shares of stocks from Albertson's, a grocery store chain, at $75 each, for a total investment of $13,125. Over a four month period, you notice that the stocks have gained in profit, and you would like to do something to ensure that you keep this earned profit.
Not knowing any better, you put a stop loss of $50 per stock without consulting your stockbroker. From that point forward, if your stock decreases to $50 per stock, you are forced to sell it, and any previous earned profit is null and void. The only chance you have in gaining back that profit, is if you are quick enough in the non-stop stock market game, to purchase the Albertson's stocks before someone else does. However, even if you are able to do this, you have still suffered a great loss monetarily.
This is why you must educate yourself BEFORE playing the stock market game.
As with any game, there is some form of risk involved, however, when playing the stock market game, you can prevent a great deal of heartache by simple taking the time to gain knowledge about all types of order you are able to place on your stocks. If you need help learning about types of orders to place on your stocks, you should consult your well-trusted stockbroker in order to seek professional advice before taking matters into your own hands, inevitably forcing yourself to lose your invested money's profit. Thus, it is absurd to invest your hard earned money into any program before you know all the facts necessary to make a well-informed, educated decision.
All-or-None Orders in Stock Trading
If you are an investor who relies heavily on penny stocks, the all-or-none order (AON) is extremely important. The AON order works to safeguard your purchase by providing the guarantee that you either receive every single stock that you requested or none at all. This type of order can problematic when a particular company lacks the cash to stand behind their stocks or a limit has been placed on the order.
All-or-none orders are the lowest priority of your stockbroker therefore, this type of transaction is executed last, so when your broker finally attempts to execute this order, there must be enough stocks available to buy or the order is null and void. Therefore, your all-or-none order will not be filled until there is enough stock available no matter how much time elapses before purchase of an AON order is accomplished.
In order to better clarify this type of order, an example is provided. Let's say that you put in an order to buy 2500 shares of stock from Wal-Mart, however, because Wal-Mart stocks are in such high demand, only 1000 shares are available for purchase. If you place an all-or-none order on the Wal-Mart shares, then you must wait until 2500 shares are available for purchase.
Now, if it takes 10 months for 2500 shares of stock from Wal-Mart to become available, then there is a high chance that the price of each stock has increased. However, because you placed an AON order 10 months ago, your broker is currently executing the order, and the total number of stocks are presently available, so you are required to purchase all 2500 of them no matter what the price per stock may be.
Obviously the advantage to the all-or-none order is that the price of any given company's stock could either stay the same or even decrease in price. For example, you would like to obtain 3000 shares of stock in Applebee's, a restaurant chain; however, because Applebee's stocks are in high demand, there are only 1000 stocks available for purchase. You really love this restaurant chain and you had your heart set on 3000 shares of Applebee's, so you decided to place an all-or-none order on the purchase of these stocks. Currently the each share of stock is priced at $200 each, so you would only presently be investing $600,000 if the stocks were available.
So, now you play the "waiting" game to see if other people who own stocks in Applebee's are willing to sell them. Finally, after 2 years of waiting, your stockbroker contacts you with the good news that all 3000 shares of Applebee's stock are available. And, even better news, each stock has dropped $50 in price. That means that instead of investing $600,000 for 3000 shares of Applebee's stock, you only have to invest $450,000! If you budget allows, that leaves you with $150,000 to invest into another stock.
Now, there are two huge disadvantages of all-or-none orders, the first one being price inflation. For example, you would like to purchase 4500 shares of stock from Southwestern Bell, a phone company. So, again, you contact your broker with this decision. You broker informs you that there are only 2500 shares of stock available from Southwestern Bell, however, that it would be wise to place an all-or-none order because these stocks seem to steadily increase in profit and lower in price per stock. So, you follow through with this.
About 9 months later, your stockbroker reports to you that all 4500 shares of stock in Southwestern Bell are available; however, the price per stock has increased 34%. Because you did not cancel this all-or-none order, you are now forced to purchase all 4500 shares of Southwestern Bell stock. The other disadvantage is that you may not receive the all-or-none ordered stocks. Let's say that you wanted to purchase 6000 shares of stock from Friedman's, a jewelry store, however, not all the stock is currently available. So, you place an all-or-none order. Three months later, your stockbroker goes to complete the order; however, there are still not a total of 6000 stocks available from Friedman's. Because your stockbroker attempted to fill the order, you have lost all of the stocks that you wanted to purchase.
Because this type of order is highly stressful, it is imperative that you hire a broker in which you can thoroughly trust due to the fact that one wrong move will make you lose everything!
All-or-none orders are the lowest priority of your stockbroker therefore, this type of transaction is executed last, so when your broker finally attempts to execute this order, there must be enough stocks available to buy or the order is null and void. Therefore, your all-or-none order will not be filled until there is enough stock available no matter how much time elapses before purchase of an AON order is accomplished.
In order to better clarify this type of order, an example is provided. Let's say that you put in an order to buy 2500 shares of stock from Wal-Mart, however, because Wal-Mart stocks are in such high demand, only 1000 shares are available for purchase. If you place an all-or-none order on the Wal-Mart shares, then you must wait until 2500 shares are available for purchase.
Now, if it takes 10 months for 2500 shares of stock from Wal-Mart to become available, then there is a high chance that the price of each stock has increased. However, because you placed an AON order 10 months ago, your broker is currently executing the order, and the total number of stocks are presently available, so you are required to purchase all 2500 of them no matter what the price per stock may be.
Obviously the advantage to the all-or-none order is that the price of any given company's stock could either stay the same or even decrease in price. For example, you would like to obtain 3000 shares of stock in Applebee's, a restaurant chain; however, because Applebee's stocks are in high demand, there are only 1000 stocks available for purchase. You really love this restaurant chain and you had your heart set on 3000 shares of Applebee's, so you decided to place an all-or-none order on the purchase of these stocks. Currently the each share of stock is priced at $200 each, so you would only presently be investing $600,000 if the stocks were available.
So, now you play the "waiting" game to see if other people who own stocks in Applebee's are willing to sell them. Finally, after 2 years of waiting, your stockbroker contacts you with the good news that all 3000 shares of Applebee's stock are available. And, even better news, each stock has dropped $50 in price. That means that instead of investing $600,000 for 3000 shares of Applebee's stock, you only have to invest $450,000! If you budget allows, that leaves you with $150,000 to invest into another stock.
Now, there are two huge disadvantages of all-or-none orders, the first one being price inflation. For example, you would like to purchase 4500 shares of stock from Southwestern Bell, a phone company. So, again, you contact your broker with this decision. You broker informs you that there are only 2500 shares of stock available from Southwestern Bell, however, that it would be wise to place an all-or-none order because these stocks seem to steadily increase in profit and lower in price per stock. So, you follow through with this.
About 9 months later, your stockbroker reports to you that all 4500 shares of stock in Southwestern Bell are available; however, the price per stock has increased 34%. Because you did not cancel this all-or-none order, you are now forced to purchase all 4500 shares of Southwestern Bell stock. The other disadvantage is that you may not receive the all-or-none ordered stocks. Let's say that you wanted to purchase 6000 shares of stock from Friedman's, a jewelry store, however, not all the stock is currently available. So, you place an all-or-none order. Three months later, your stockbroker goes to complete the order; however, there are still not a total of 6000 stocks available from Friedman's. Because your stockbroker attempted to fill the order, you have lost all of the stocks that you wanted to purchase.
Because this type of order is highly stressful, it is imperative that you hire a broker in which you can thoroughly trust due to the fact that one wrong move will make you lose everything!
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