if a very large investor comes in and starts to dump his stock, the price of the stock will move down.
Some people like to buy stocks and hold them for many years. We call them "investors." Other people like to buy and sell stocks more quickly, maybe holding them for only an hour, a day, a week, or a month. We call these people "traders."
As an individual, you cannot trade directly on a stock exchange. For that you will need a "broker" or "brokerage account." A broker is simply a middleman who gives people access to a stock exchange.
When you are buying a stock, you will be given the choice of using two different kinds of orders. The first is called a "market order." This order tells the broker to get you into the stock as quickly as possible, regardless of price. If you use a market order, you might end up buying the stock at a price that is far away from where it last traded.
When you are buying a stock, you will be given the choice of using two different kinds of orders. The first is called a "market order." This order tells the broker to get you into the stock as quickly as possible, regardless of price. If you use a market order, you might end up buying the stock at a price that is far away from where it last traded. This is because every stock has a bid price and an offer (or "ask") price. The bid is the price at which someone is willing to buy the stock. The offer is the price at which someone is willing to sell the stock.
“You sell to the bid, and you buy from the ask.”
The distance between the bid and the ask is called the "bid-ask spread." A liquid stock like Microsoft (MSFT) or Apple (AAPL) will have a bid-ask spread of just a penny.
A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two.
A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two. If you place a market order to buy a liquid stock, you will usually be OK. That's because a market order will tell the broker that you want to buy your shares from the ask. Since it is just a penny away from the bid price, your order will usually be filled very close to where you are currently seeing the stock trade.
A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two. If you place a market order to buy a liquid stock, you will usually be OK. That's because a market order will tell the broker that you want to buy your shares from the ask. Since it is just a penny away from the bid price, your order will usually be filled very close to where you are currently seeing the stock trade. However, if you use a market order on an illiquid stock, you might get a price that is far away from the current market, or from where the stock last traded. Let's say that stock XYZ is illiquid. There's a bid for just 300 shares at 50.00. And there's an ask for just 200 shares at 52.00. If you use a market order on a stock like this, you will have your order filled at 52.00 or higher. If you place a market order for 400 shares on XYZ, your broker will first give you the 200 shares at 52.00. Then it will look for the next best price. In an illiquid stock, that might be another 100 shares at 52.25 and then another 100 shares at 52.50. So you will end up getting 400 shares of XYZ at an average price of 52.1875.
A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two. If you place a market order to buy a liquid stock, you will usually be OK. That's because a market order will tell the broker that you want to buy your shares from the ask. Since it is just a penny away from the bid price, your order will usually be filled very close to where you are currently seeing the stock trade. However, if you use a market order on an illiquid stock, you might get a price that is far away from the current market, or from where the stock last traded. Let's say that stock XYZ is illiquid. There's a bid for just 300 shares at 50.00. And there's an ask for just 200 shares at 52.00. If you use a market order on a stock like this, you will have your order filled at 52.00 or higher. If you place a market order for 400 shares on XYZ, your broker will first give you the 200 shares at 52.00. Then it will look for the next best price. In an illiquid stock, that might be another 100 shares at 52.25 and then another 100 shares at 52.50. So you will end up getting 400 shares of XYZ at an average price of 52.1875. Now let's say that you made a mistake and want to immediately sell your stock. If you place a market order to sell, you will first be able to sell 300 shares to the bid at 50.00. Then maybe the next highest bid is 100 shares at 49.50. If you are filled at these prices, you will end up having lost $925 (before commission), even though the stock has not really moved.
A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two. If you place a market order to buy a liquid stock, you will usually be OK. That's because a market order will tell the broker that you want to buy your shares from the ask. Since it is just a penny away from the bid price, your order will usually be filled very close to where you are currently seeing the stock trade. However, if you use a market order on an illiquid stock, you might get a price that is far away from the current market, or from where the stock last traded. Let's say that stock XYZ is illiquid. There's a bid for just 300 shares at 50.00. And there's an ask for just 200 shares at 52.00. If you use a market order on a stock like this, you will have your order filled at 52.00 or higher. If you place a market order for 400 shares on XYZ, your broker will first give you the 200 shares at 52.00. Then it will look for the next best price. In an illiquid stock, that might be another 100 shares at 52.25 and then another 100 shares at 52.50. So you will end up getting 400 shares of XYZ at an average price of 52.1875. Now let's say that you made a mistake and want to immediately sell your stock. If you place a market order to sell, you will first be able to sell 300 shares to the bid at 50.00. Then maybe the next highest bid is 100 shares at 49.50. If you are filled at these prices, you will end up having lost $925 (before commission), even though the stock has not really moved. That is why it is usually best to stay away from illiquid stocks. If you absolutely must trade them, you can try putting in a limit order that is right in the middle of the bid-ask spread. But there is no guarantee that your order will ever be filled.
A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two. If you place a market order to buy a liquid stock, you will usually be OK. That's because a market order will tell the broker that you want to buy your shares from the ask. Since it is just a penny away from the bid price, your order will usually be filled very close to where you are currently seeing the stock trade. However, if you use a market order on an illiquid stock, you might get a price that is far away from the current market, or from where the stock last traded. Let's say that stock XYZ is illiquid. There's a bid for just 300 shares at 50.00. And there's an ask for just 200 shares at 52.00. If you use a market order on a stock like this, you will have your order filled at 52.00 or higher. If you place a market order for 400 shares on XYZ, your broker will first give you the 200 shares at 52.00. Then it will look for the next best price. In an illiquid stock, that might be another 100 shares at 52.25 and then another 100 shares at 52.50. So you will end up getting 400 shares of XYZ at an average price of 52.1875. Now let's say that you made a mistake and want to immediately sell your stock. If you place a market order to sell, you will first be able to sell 300 shares to the bid at 50.00. Then maybe the next highest bid is 100 shares at 49.50. If you are filled at these prices, you will end up having lost $925 (before commission), even though the stock has not really moved. That is why it is usually best to stay away from illiquid stocks. If you absolutely must trade them, you can try putting in a limit order that is right in the middle of the bid-ask spread. But there is no guarantee that your order will ever be filled. A limit order is the second type of order, after a market order. Whereas a market order tells your broker to just get you into or out of the stock a
I almost always use limit orders in my trading, even with highly liquid stocks. So if I want to buy a liquid stock like Microsoft, I will look where the ask is, and then just enter a limit order using that ask price. That way I won't get into trouble if a bit of market-moving news comes out one millisecond after I place my order and Microsoft suddenly spikes to 126. In this situation, if you have used a market order, there is a good chance that you will get filled at 126, even though Microsoft is a liquid stock.
When you place an order to buy or sell a stock, you will have one more choice to make: “Do I use a Day order or a GTC order?” A Day order will only be executed during regular market hours today. If the order has not been filled by the time the stock market closes for the day, it will be automatically cancelled by the broker. A GTC ("good 'til cancelled") order will be good for today's market hours, as well as the following days and weeks. If you don't cancel it, it will still be working. Some brokers will automatically cancel a GTC order after a month or more, if it has not yet been filled. Check with your particular broker to find out their policies.
If you are going to trade before the market opens or in the after-hours market, always use a limit order.
Stocks with lower trading volume will usually be more volatile, with a wide bid-ask spread that also bounces around.
Until you become an advanced trader, it is probably best to stick to normal market hours. And please don’t ever trade an IPO using market orders. That is the ultimate newbie mistake.