Once you have the ticker symbol for the company you wish to trade, you are ready to place your first order.
Go to your virtual trading account and you’ll see several options for order type—market, limit and stop.
You have already found the symbol to trade “LUV” and you can enter any quantity of shares to buy. Many virtual trading accounts implement a position limit that forces you to diversify so you can buy up to 25% of your portfolio value. At real-money brokers, of course, you can “put all of your eggs in one basket” and buy as many shares of a stock as your cash and buying power will allow.
There are several different types of orders you can use when you place a trade. A few of the most popular and those you should become familiar with include:
- Market OrdersAn order that executes immediately at the best available price.: The simplest variety, a market order instructs your broker to execute your order immediately at market prices, whatever they may be. Depending on which “hat” you’re wearing (buyer or seller), as long as there are other willing buyers or sellers of the stock you want to acquire or dispose of, your order should be quickly carried out. Your buys will always be executed at the best ask price, and your sells will be executed at the best bid price.
- Limit OrdersAn order that only executes which the target price has been reached.: When you place a limit order, you’re asking to buy a stock at no more than or sell a stock at no less than a specified price that you set. For example, suppose you decide you want to buy shares of LUV at $9.25 when it is currently trading at $9.45. You would place a limit buy order for $9.25 which should fill if the price drops down to $9.25 or lower. Once you buy the shares, you might want to place a limit sell at $10.00 which should fill if the price gets to $10.00 or higher.
- Stop Order: When you place a Stop Order, you are asking to buy a stock once a certain upper price point is reached, or to sell a stock once a lower stock price has been reached. For example, suppose you bought your LUV shares at $9.25 and instead of placing a Limit Sell Order at $10.00 you decide to place a Stop Sell Order at $8.75. This order, also known as a “Stop Loss” order, would sell your LUV shares if the stock price dropped to $8.75. These orders are used to limit your losses. A Stop Buy Order would be used if LUV was trading in a $9.25 to $9.50 range and you only wanted to buy it if the stock price spiked up to $9.60. People use Stop Buy orders so that they can buy a stock only when it breaks out of a narrow trading range.