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purchases rather than one round-lot purchase.
As a smaller investor who wants to buy in round lots, you can do one of two things:
Keep depositing into your brokerage account until you have enough to buy the round lot.
Group together with other smaller investors to purchase the round lot.
Should you be fiercely independent or not have any friends, perhaps you should consider
purchasing in odd lots.
Should you decide to save money in your brokerage account, be sure and ask what types of
financial products are available in which you can park your money until you use it to initiate a
trade. Virtually all brokerages offer money-market products such as mutual funds, with which
investors can earn interest on money not currently being used. If you don't ask, you run the
risk of losing possible interest payments.
TIP
Purchasing stocks in round lots through pooling its members' funds is an advantage
investment clubs offer novice investors. Investment clubs also offer opportunities for
sounding out new ideas, studying and learning, and networking into the financial
community.
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Odd Lots
If a round lot is the "six-pack" of stock purchase, an odd lot is the à la carte of stock
purchase. Simply put, an odd lot is any trade involving fewer than 100 shares (or fewer than
10 in the case of those cabinet stocks). Although the price per share can be a little higher,
odd lots are the preferred method of purchase for many investors.
First of all, you can purchase exactly the number of shares you want; no more, no less. If you
want to buy 29, 32, or 61 shares of stock, you don't have to round up to 100, as in a round lot
purchase. Second, you can purchase by amount rather than by share. For example, you
want to buy $100 worth of XYZ Company stock, and the stock is worth $12 per share. By
buying in an odd lot, you can buy 8.3 shares of XYZ stock.
Plain English
An odd lot is any number or shares of stock that are purchased outside of a
predetermined standard.
Many investors do buy in odd lots and are unhappy about not getting the price deals
available in round lots. As a result, many brokerages have addressed this situation by
grouping together their own investors in order to purchase round lots at round lot prices. So,
even without friends, you may still be able to get the better price.
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Determining How to Buy Your Stock
In virtually every movie I see that has a stock market scene, people are screaming "Buy, sell,
limit, stop, market order," and so on at the top of their lungs. (Usually these same people are
also involved in substantially more intrigue than ever happens on the stock floor, but that's
another matter.) Here we finally get to clear up the confusion regarding the terms used in
purchasing and selling stock. Contrary to popular belief, these terms are not interchangeable
and they actually do mean something.
After you've decided to buy stock in either a round or an odd lot, you need to tell your broker
how to order the stock.
Plain English
Orders are instructions given to a broker to specify under what conditions stock
should be bought or sold.
Consider Timing
Your first consideration is the amount of time in which you allow your broker to complete the
transaction for you.
Say that you want your broker to buy 100 shares of XYZ Company, but only if the broker can
do it today, because tomorrow, for whatever reason, you don't want him or her to continue to
attempt to complete the transaction. This instruction is known as a day order. The vast
majority of all transactions is done as day orders, partly because, unless the investor
specifies that the order should remain open longer, it is assumed to be a day order. Another
reason for the preference of day orders is that most people want their transactions performed
now, not in the future, because of such factors as market volatility and price fluctuation.
Investors do have the option, however, to keep their order open longer by specifying how
long they want the broker to continue to attempt to complete the transaction. The length of
time may depend on many factors, such as the lack of availability of the stock or the
investor's belief that the price of the stock is about to change. When the order is placed, the
investor gives a time limit, or time notation. These time notations include &
GTW.
Good Through the Week means that the order will remain open until the closing time of
the last trading day or session of the week.
GTM.
Good Through the Month means that the order will remain open until the closing time of
the last trading day or session of the month.
GTC.
Good unTil Canceled means that the order will remain open until the investor instructs
the broker to cancel it.
Plain English
A time notation is an instruction to a broker specifying how long an order to
purchase or sell stock should remain in effect.
No, I don't know why the last one isn't GUC instead of GTC; it just is. To further confuse the
situation, GTC orders are also known as open orders. This simply means that the order is
open until the investor closes, or cancels, it. That's not so confusing.
Consider Price
Next, you have to tell the broker how much you want to pay for the purchase, or at what price
you are willing to sell the stock. This is done by giving one of the following orders:
Market orders
Limit orders
Stop orders
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Market Orders
Market orders are the kind most commonly given when purchasing and selling stock. When
you place a market order, you simply tell your broker to purchase or sell a certain number of
shares. You do not specify the price or time frame within which you consider the purchase or
sale acceptable. As discussed previously, the market order is assumed to be a day order,
unless specified otherwise. The broker will go to the market, usually within a couple of
minutes or in the case of e-brokerages, seconds and purchase or sell your stock at
whatever price the stock is trading.
Plain English
Market orders, also know as open orders, instruct the broker to go to the market
immediately and buy or sell shares at whatever price is currently being offered.
If the order were meant to be fulfilled immediately, would there be any reason for not making
it a day order? Could it be anything else? Sometimes stocks may be difficult to sell or to find
for purchase at given rates. For example, say you want to buy 100 shares of XYZ Company
stock. Remember that XYZ Company issued a limited number of stocks to begin with, so
there are really only 105 shares trading on the market. It's going to take your broker a lot
longer than a day to track down those 100 shares for you to purchase if he or she is able to
do it at all. In the case of selling, should your stock be unattractive, the broker may not be
able to find someone who is willing to purchase it. In either case, you may wish to consider
leaving the order open a little longer than a day by using one of the previously discussed
notations.
As a side note, the broker doesn't really "go to the market." One thing those Wall Street
movies do show realistically is that there are already far too many people on the Exchange
floor. In addition, some of those markets aren't physically real, but we'll get into that later.
Almost all transactions these days are handled by computerized systems, so your broker is
free to conduct your business within the comfort of his or her office.
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Limit Orders
Limit orders are perfectly named, as they imply that a limit has been placed on the price the
investor is willing to pay to purchase the stock or that a minimum price has been given at [ Pobierz całość w formacie PDF ]
