Last Updated on October 29, 2023 by Asfa Rasheed
In order to trade securities, you must first understand the different types of orders and strategies in trading. There are six basic types of orders: market, stop, limit, good-til-canceled (GTC), discretionary vs. non-discretionary, and solicited vs. unsolicited. In this article, we will discuss each type of order in detail. Additionally, we will explore the differences between buying and selling securities, as well as long and short positions. By understanding these concepts, you will be better prepared to take the Series 7 exam!
Trading securities can be a complex and highly-strategic process. To begin, it is important to understand the different types of orders that are used in trading. The most common types of orders include market, stop, limit, good-til-canceled (GTC), discretionary vs. non-discretionary, and solicited vs. unsolicited.
Market orders allow you to buy or sell a security at the current market price. This type of order may be useful if you need to execute a trade quickly or if prices are moving rapidly. However, there is no guarantee that you will get the exact price that you want when using a market order.
Stop orders are used when you want to set a specific price at which you will automatically buy or sell a security. This type of order is useful when you want to protect yourself from losses, as it can limit the amount that your position loses if prices suddenly drop. However, stop orders may also cause you to miss out on potential profits if prices rise rapidly.
Limit orders allow you to set the maximum or minimum price at which you are willing to buy or sell a security. This type of order gives you more control over your trading decisions and can help ensure that you get the best possible price for your trades. However, there may be times when market conditions prevent limit orders from being executed as intended.
Other common types of orders include good-til-canceled (GTC) orders, which allow you to set a limit price that will remain in effect until it is either executed or removed by you. Additionally, some traders choose to use discretionary vs. non-discretionary orders, which give them more control over the timing and execution of trades.
In addition to understanding different types of orders, it is also important to understand the difference between buying and selling securities. When you buy a security, you are taking on a long position – meaning that you expect its value to increase over time. Conversely, when you sell a security, you take on a short position – meaning that you expect its value to decrease in the future.
Of course, trading also involves considering your overall strategy for buying and selling securities. For example, you may choose to take a short position in a security when it is performing poorly and you expect its value to decrease. Alternatively, you may decide to buy a security if you believe that it has great potential for growth, even if its price is already high. Ultimately, the key to successful trading is having an understanding of the various orders and strategies available to help you meet your goals and maximize your returns.
If you are studying this information for the Series 7 exam, know that there are many other topics that will be covered on the test. Achievable offers comprehensive Series 7 exam example questions to prepare you for the Series 7 Exam. Sign up today to start your Series 7 exam prep journey!