Markets & Limits & Stops, OMY !!! A guide to stock transaction orders Herb Barnett barnett@zbzoom.net Expo Seminar B3

Disclaimer The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell any of the stocks, mutual funds, or other securities that may be referenced. The securities of companies referenced or featured in the seminar materials are for illustrative purposes only and are not to be considered endorsed or recommended for purchase or sale by BetterInvesting™ National Association of Investors Corporation (“BI”) or the BetterInvesting Volunteer Advisory Board, its volunteer advisory board (“BIVAB”). The views expressed are those of the instructors, commentators, guests and participants, as the case may be, and do not necessarily represent those of BetterInvesting™ or BIVAB. Investors should conduct their own review and analysis of any company of interest before making an investment decision. Securities discussed may be held by the instructors in their own personal portfolios or in those of their clients. BI presenters and volunteers are held to a strict code of conduct that precludes benefiting financially from educational presentations or public activities via any BetterInvesting programs, events and/or educational sessions in which they participate. Any violation is strictly prohibited and should be reported to the President of BetterInvesting or the Manager of Volunteer Relations.

Our Objective To lessen any uncertainty about your choices when buying or selling a stock We will discuss Common terms Order types Pros and cons Examples Entering orders Conditional orders

About Our Examples We will be discussing only “long” positions, not margin, shorts or options. Actual dollar amounts and percentages used in the examples are not to be considered as recommendations. When placing a trade you should always use whatever values are appropriate for your specific situation. Commissions are ignored for these examples.

Stock Pricing Terms Think of market as an auction Bid price What a buyer is willing to pay Ask price What a seller wants to receive Spread Bid  Spread  Ask

Order Types Market Good ’Til Canceled Limit Stop Trailing Stop ($ or %) Conditional

Market Order Transaction is executed immediately during normal trading hours Buy at the market Pay the ask price Sell at the market Receive the bid price You pay, or receive, the current quote at the moment your order is entered

Good ’Til Cancelled (GTC) Order is open until executes or expires May or may not execute Executes only if your target is met Your choices for expiration End of trading day End of interval set by broker When you cancel May cancel automatically on split or dividend

Limit Order You specify a price Broker acts when order is triggered Broker may refuse outrageous request May be limited to 20% to 30% from current price Broker acts when order is triggered

Buy Limit Specify price below current price Stock currently at $35 SSG suggests Buy Below $30 (3:1 U/D) Enter “Buy with limit @ $30” May execute at or below $30 May not execute at all Stock may not drop to your limit

Stop-Loss Target must be below current price “Sell if price drops to $30” Some protection against sharp drop in market No assurance you will get price you specify Bad news may force price through your target without stopping You will get best price available

Stop-Limit to Sell Sets specific price for execution “Sell stop-limit at $30” Stock will be sold if there is a buyer at $30 Stock will not be sold if price drops below $30 Order is still in effect (Day or GTC) Will execute if stock goes back up to $30

Trailing Stop to Sell Provides some protection for profits if stock is rising Stop is adjusted upward (re- priced) continuously as stock reaches new highs Trailing stop can go up, not down Examples: Sell if it drops $5 Sell if it drops 10%

Trailing Stops Stop moves up as stock price increases Buy @ $40 Stock drops below $49 stop, Sell Order is activated Stock hits high of $53, stop is at $49 Trailing Stop set @ $4 Stop stays level as stock declines

$ Trailing Stop Examples Current Price $50 Trailing stop $5.00 below = $45.00 Stock is sold if it drops to $45.00 Current price rises to $100 Trailing stop $5.00 below = $95.00 Stock is sold if it drops to $95.00 Much smaller % change triggers sale as price increases

% Trailing Stop Examples Current Price $50 Trailing stop 10% below = $45.00 Stock is sold if it drops to $45.00 Sold at $5.00 less than high Current price rises to $100 Trailing stop 10% below = $90.00 Stock is sold if it drops to $90.00 Sold at $10.00 less than high % change is the same

Setting Your Trailing Stop Percentage may be more appropriate than dollar amount If set too tight, you may lose good stock on brief dip Don’t get too greedy Normally entered as GTC order Need to keep track of expiration Broker may cancel or adjust on stock split or dividend

Market Order Entry Basic order

More Detailed Order Entry Specify target for all except market orders Basic order Set up a conditional order

Conditional Orders Enter combination of multiple orders Cannot be market order Multiple orders must be same type OCA – One Cancels Another If first executes, other is canceled OTA – One Triggers Another If first executes, other is submitted

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