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Before you venture deeper into your stock trading journey, this article covers the basics you should know. You can choose to be an occasional trader – buying and selling for a longer-term investment portfolio – or a much more active one where you look to make shorter-term profits.
Understanding bid & ask: Why are there two different prices for the same stock?
The bid is the price investors can sell a stock on the open market
The ask is the price investors can buy a stock on the open market
Understanding spreads: What does the difference between the bid and ask represent?
The difference between the bid and the ask is called the spread
Spreads are an indicator of market liquidity: the smaller the spread, the higher the liquidity, and vice versa
Market markers and market takers: What do these terms mean?
Market markers are entities responsible for continously quoting prices in a certain market. They are typically banks or brokerage companies.
Market takers are smaller individual participants who can only ‘take’ the prices market makers offer.
Price takers buy at the ask price and sell at the bid price, but market makers buy at the bid price and sell at the ask price.
Understanding orders: What are orders?
Orders are instructions placed by investors to buy or sell a certain stock
It can be made to a broker, brokerage firm or through a trading platform
There are 3 basic types of orders: market orders, limit orders and stop loss orders
Market Orders
An order to buy or sell a certain quantity of a stock at the prevailing market price
Market orders can be filled almost immediately if there is enough volume to meet the order
Limit orders
An order to buy or sell a certain quantity of a stock at a specific price (or better)
Limit orders are filled only when there is enough volume at the specified price or better
For example, an investor sets a limit order to buy Stock X at $100 – the system will only place the order if the price is $100 or less
Stop loss orders
An order to sell a certain quantity of stock if it dips to a specific price
It is a specific type of limit order used to minimises losses on a stock by automatically selling it once it falls to a certain price
For example, if an investor bought Stock X at $100, setting a stop loss at $80 will limit the maximum losses to $20 a share
How long will orders remain open?
There are two types of order durations – good till day (GTD) and good till cancel (GTC).
A GTD order will be cancelled at the end of the trading day
A GTC order will stay open indefinitely either until the order is executed or the investor manually cancels it.
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Disclaimer
This article is for general information only and it does not constitute an offer, recommendation or solicitation of an offer to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This article has not been prepared for any particular person or class of persons and does not constitute and should not be construed as investment advice or an investment recommendation. It has been prepared without regard to the specific investment objectives, financial situation or particular needs of any person or class of persons. You should seek advice from a licensed or an exempt financial adviser on the suitability of a product for you, taking into account these factors before making a commitment to purchase any product or invest in an investment. In the event that you choose not to seek advice from a licensed or an exempt financial adviser, you should carefully consider whether the product or service described herein is suitable for you.
You are fully responsible for your investment decision, including whether the investment is suitable for you. The products/services involved are not principal-protected and you may lose all or part of your original investment amount.
Standard Chartered Bank (Singapore) Limited will not accept any responsibility or liability of any kind, with respect to the accuracy or completeness of information in this article.
Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors are insured by the Singapore Deposit Insurance Corporation, for up to S$100,000 in aggregate per depositor per Scheme member by law. For clarity, these investment products are not deposits and do not qualify as an insured deposit under the Singapore Deposit Insurance and Policy Owners’ Protection Schemes Act 2011. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.
The information stated in this article is accurate as at the date of publication.
