The right way to Buy and Sell Stock

Common mistakes when buying and selling stock include misusing market orders, buying or selling at the open or close or when the market is closed, not keeping good records and not paying attention to your personal time frame.

Most of these mistakes have little to do with choosing a suitable stock or creating a balanced financial plan. However, they can still slow down your plan by causing you to waste money. Here are some mistakes to avoid in stock transactions:

Using market orders

Buying or selling “at the market” means that you are asking the system to choose a price for you. Often you can get a better deal by naming a price yourself, especially when the stock you want to buy or sell is thinly traded. When there is a huge gap between the bid and ask, the prices that buyers and sellers are looking for, you can often save (or make) money by choosing a price in between.

On the other hand, a market order is almost certain to be executed, and it will cost you less in commissions. If you are buying or selling a well-known stock that trades on heavy volume, you are often better off using a market order.

Buying or selling at the wrong time of day

After the stock markets are closed, some very sophisticated traders keep trading. To put it another way, it’s the Wild Wild West. Similarly, the first and last minutes of the trading day can be a difficult environment to buy or sell in as well. It’s probably best to enter your trades when everybody else does. Trade with the crowd when the stock markets are up and running.

Record keeping

Your broker will keep records for you, but keep them for yourself as well. Most of the documents that you get from a broker are likely to advise you to save them for tax records. Since the government now wants to know exactly what a shareholder did is why you need records.

Pay attention to your time frame

If you have long-term goals, try to avoid buying or selling for short-term reasons. Keep the future in mind, so you are not distracted by minor setbacks in the progress of a business you admire. Almost all small investors should also avoid buying on fabulous news because it will already have moved the stock. Stick to your plan, and buy or sell when you decide to do it, not when you feel like events are forcing your hand.