6) Brokers and Online Trading: Accounts And Orders

by · August 25, 2010

Account Types

There are four major types of accounts you can choose from depending on what type of securities you hold. These are:

Cash Account: This is the most common account for most people getting into the investing world. A cash account is where you deposit cash in order for you to buy stocks, bonds, mutual funds and others.

IRA Account: The IRA is short for Individual Retirement Account. It is a type of investing to earn funds for retirement.

Margin Account: This is investing through money borrowed from your brokerage. Be extra careful with this type of account because both gains and losses can be magnified greatly. (We suggest that you read more about margin trading.)

Option Account: Options are securities that can be used in several ways. If used properly, options will give you more return on your investment compared to stocks and bonds. It is, however, a high-risk investment strategy better left for the more seasoned investors.

Transfer of Account

The process of transferring your account to another brokerage is relatively easy. Contact the brokerage you are moving to and they should be able to help you with the necessary paperwork or assist you with the proper forms.

I’m ready to trade, so what now?

Trading has to be specific and you must instruct the broker on how you want the transaction to be performed. We’ve listed the common order types below that are used when placing an order using an online interface or on the phone:

Market Order: This order requires immediate execution at the best price available. This type of trade are the cheapest because there is little work or maintenance on the part of the broker.

Limit Order: This tells the broker to buy or sell a security at a specified price. Limit orders are often more expensive than market orders.

Stop Order: An order to transact only after a specified level has been reached. This may be a stop-loss or stop-limit. The exact price is not guaranteed, but this can be a good way to protect your investment.

All or None (AON): This is essentially a limit order with a condition to the broker to buy or sell a security only if the entire order is filled out and not just part of it.

Day Order: The order expires at the end of the business day if it has not been filled by the brokerage.

Good Til Canceled (GTC): This type of order remains in effect until it is either cancelled by the accountholder or until the order has been executed by the broker.

Fill-Or-Kill: This order must be for immediate execution or the order is automatically cancelled if not fulfilled.

Short Sale: This is an advanced investing technique in which stock is borrowed and sold in the hopes of returning the stock at a lower price.

Buy to Cover: This is an order placed to close out a short position.