Trading for Dummies® 2nd Edition

Chapter 14. Executing Your Trades

In This Chapter

• Identifying the mechanics of a trade: Entering and exiting a position

• Grasping the nuances of selling short

• Staying on the right side of the regulators

• Understanding margin and leverage

• Remembering the tax man and avoiding the wash-sale rule

You've picked your stock and you're ready to enter a position. As long as you're entering the position while the market is open, you have some flexibility in the way your order is entered and executed. However, if you cannot monitor the market during business hours, or if you're entering your order after the market is closed, you need to be much more precise when placing your order and indicating the type of fill (or terms of the order) you're willing to accept. Otherwise, you're likely to run into a nasty surprise when you review your broker's fill report.

This chapter reviews available alternatives when you enter an order to buy, sell, or sell short, and how the choices you make can affect the trade. We also review margin requirements, discuss how trading affects your tax return, and identify situations in which you can run afoul of stock-trading regulations.

Entering and Exiting Your Trade

When it's time to enter or exit a trade, you have to tell your broker what you want to do. To do that, you enter an order with your broker. This order tells the broker the number of shares and the symbol for the stock or security you're planning to trade. Your order also specifies the type of transaction you'd like ...