Understanding Stocks

WHERE TO BUY STOCKS 59
Market Order: Fast Fills but Not the Best Price
The fastest and easiest type of order is a market order. It is also the most
common. Let’s say we look up the stock quote on Bright Light (BRLT)
and see that it is trading at $20 by $20.25. To refresh your memory, if
you wanted to buy Bright Light, the current market price is $20.25,
which is how much you would have to pay if you wanted to buy it right
now. You don’t like that price? Don’t worry—it will change in a second.
(It’s kind of like Chicago weather.)
When you pay the market price for a stock, it is filled fast. Why?
Because the people selling it to you know that the price they’re giving
you is the best price for them. It’s kind of like buying a car and paying
the list price. If you want the stock quickly, you pay the market price.
Just remember that you are paying a little bit more for the speed.
Let’s take a closer look at the other kinds of orders you can place.
Limit Order: Slower Fills at Competitive Prices
There is another type of order that is a little more complicated but that
allows you to negotiate a better price—the limit order. The advantage of
a limit order is that you can decide for yourself the price at which you
want to buy or sell the stock. The disadvantage is that a limit order often
takes more time to fill. In fact, it may never be filled, especially if the
price you picked is too low or too high.
Here’s how the limit order works: Let’s say Bright Light is trading
at $20 a share and you want to buy it, but you feel you could get it for
a better price. Instead of buying it at the market price, $20, you put an
order in to buy it at a limit price of $19. If Bright Light ever falls to $19,
then the order will be initiated and filled at the current market price. If
the stock never makes it to $19, then your order won’t be filled.
You have a couple of choices when you enter a limit order. For
example, let’s say you place a limit order to buy 100 shares of Bright
Light at $19 a share (even though it’s selling for $20 a share). At this
time, you must specify whether the order is good for the day only (day
order) or good until you cancel the order (good-till-canceled order, or
GTC). If you select good-till-canceled, you can go about your business