Disk 5.3 Placing Your Trades

In Section 3 of Disk 5 Guy deals with the different types of orders that can be placed. Different brokers over the years may have adopted different names for the different types of orders. He therefore goes through market orders, limit orders, contingent orders and sell stop to buy/buy stop to close in order to ensure that you have a clear understanding. Again, amply illustrated in the presentation.

Types of Orders

Naturally, if starting out as a new trader it is important to pick up the phone to speak to your broker and cross check that you clearly understand whatever variations of the basic terminology they might use. Again, Guy's emphasis comes through on making sure that you fully understand the situation before you enter the fray in order to retain that calm state of mind essential for trading.

If you have followed Guy's instructions up to this point then you should never be in a situation of having to make rapid adjustments to your orders. But if you are, then now is not the time to be wondering whether you and your broker are talking the same language!

He then moves on to cover the advantages and disadvantages of using a conventional brokerage account compared to a spreadbetting account. This will be of most interest to UK customers where spreadbetting is free of tax..

This is the principal reason why the leverage available from option trading is more popular in the US whereas spread betting where you simply bet on the price movement of an instrument without ever actually trading is is more popular in the UK.

Shorting example

One function of a broker is as a source of shares to be borrowed by the trader who decides to 'short' a stock. Effectively, to sell a stock that they do not own in the first place and must borrow from the broker. This process is explained together with illustrated examples.

This is an important issue as the whole point of Flag-Trader is to get out of the mentality that trading is only profitable when the markets are rising. Whereas the reality is that money can be made by a trader whether the market is going up or down. It is the volatility, rapid changes in price, that should be traded not the direction.