Sell Short & BTC

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The word "short" has several meanings within stocks/options trading.  This post covers short selling stocks and buying to cover.   It's like a negative version of buying and selling stocks.

Entering a short position:

You can short a stock just as you can buy a stock but with the opposite intention. For simplicity, this example is a market order. I will explain the entry and exit of your position (stops and limits can also be used, but you should first understand the concept of shorting stocks).

Let's say you don't own a certain stock, but you think it will go down. The stock is currently at $10.00, but horrible news about the company just came out.

Enter the order as seen below:

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The stock will short at $10.00 (or reasonably close upon confirming the order)

What this means is the following:

You just sold 100 shares of the stock, though you never owned it.

It will show up in your portfolio as -$1000.00

If the stock price goes down to $9.00 and you close out the trade, you will have made $100.00

If the price goes up to $11.00 and you close out the trade, you will have lost $100.00

Closing out a short position:

To get that short position out of your portfolio, you will have to use “buy to cover” this might show on your interface as “cover” or “BTC”.

Let's say you shorted the stock when it was at $10.00 per share, and it's at $9.00 now.

Enter the order as seen below:

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You have now bought 100 shares to cover those you sold. Nothing will be in your portfolio after execution because you had sold stock that you didn't own (the short) and now, you are covering those shares (BTC).

Stop order: Selling

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This is sometimes called a stop/loss order.

You own 100 shares of a stock that is currently trading for $10.00 per share, and the price has been falling or you think it may fall.

You may set a stop to limit your loss in case it drops.

--or--

You may have considerable profit showing on this stock and you want to conserve a certain amount of that profit, yet allow the stock to fluctuate a bit.

You want to sell the stock automatically if the price hits $ 9.85

“Day” means the order is only good for today.

“GTC” means the order will be Good Till Canceled (in could execute 3 weeks from now or more).


Enter the Symbol, Quantity, Type (Stop), and enter 9.85 in the Stop field.  Click "Sell" and confirm the order.

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The stock will be sold when the price drops to $9.85

You will no longer own it if it hits $9.85 even if it dips and then rises again. Let's hope you picked the point at which the upside potential has been exhausted.

Note:  Some trading platforms execute Sell Stop / Stop-loss orders based on the "Last Traded Price" and other platforms use the stock's "Bid" price when executing this type of order.  Check with your broker to find out which execution method applies.


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Limit order: Selling

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You own 100 shares of a stock that is currently trading for $10.00 per share and the price has been rising or you think it will top out at $10.75

You want to sell the stock automatically if the price hits $10.75

“Day” means the order is only good for today.

“GTC” means the order will be Good Till Canceled (in could execute 3 weeks from now or more).

Enter the Symbol, Quantity, Type (Limit), and enter 10.75 in the Limit field. Click "Sell" and confirm the order.

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The stock will be sold when the price rises to $10.75

You will no longer own it if it hits $10.75 even if the stock continues to rise after execution. Let's hope you were right at picking the top.

Stop order: Buying

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There is a stock currently trading for $10.00 per share and the price has been rising or you are waiting for it to break out over a certain price.

You want to purchase 100 shares of the stock automatically if the price hits $10.75

“Day” means the order is only good for today.

“GTC” means the order will be Good Till Canceled (in could execute 3 weeks from now or more).

Enter the Symbol, Quantity, Type (stop), and enter 10.75 in the stop field. Click "Buy" and confirm the order.

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The stock will be bought when the price goes up to $10.75

You will own it at $10.75 even if the stock hits $10.75 and drops like a rock after that. Let's hope it continues up after execution.

Note:  Some trading platforms execute Buy / Stop orders based on the "Last Traded Price" and other platforms use the stock's "Ask" price when executing this type of order.  Check with your broker to find out which execution method applies.
buy stop ask

Limit order: Buying

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There is a stock currently trading for $10.00 per share and the price has been falling.

You want to purchase the stock automatically if the price hits $9.50

“Day” means the order is only good for today.

“GTC” means the order will be Good Till Canceled (in could execute 3 weeks from now or more).

Enter the Symbol, Quantity, Type (Limit), and enter 9.50 in the limit field. Click "Buy" and confirm the order.

click to enlarge

The stock will be bought when the price drops to $9.50

You will own it at $9.50 even if the stock continues to go down, lets hope it bottoms there and the price rises after that.

Market Orders

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Market orders allow you to buy or sell the stock or option at the current price without delay.

Buying:

There is a stock currently trading at $10.00 per share.

You want to buy 100 shares at $10.00 per share.

Enter the Symbol, Quantity, and Type (Market) - click "Buy" and confirm the order.

click to enlarge

The stock will be purchased within moments after sending the order.

Note: if the stock price is changing rapidly, it may not be purchased at exactly $10.00. If the stock is on the way up, it may execute at $10.03, $10.08, or any increment (depending on volume of trading and the speed of execution at the time you send the order). If the stock is going down, it could be executed at $9.99, $9.95, $9.92, etc.

Selling:

There is a stock currently trading at $10.00 per share.

You want to sell 100 shares at $10.00 per share.

Enter the Symbol, Quantity, and Type (Market) - click "Sell" and confirm the order.

The stock will be sold within moments after sending the order.

Note: if the stock price is changing rapidly, it may not be sold at exactly $10.00. If the stock is on the way up, it may execute at $10.03, $10.08, or any increment (depending on volume of trading and the speed of execution at the time you send the order). If the stock is going down, it could be executed at $9.99, $9.95, $9.92, etc.

Start at the beginning...

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I follow a few bloggers and have learned how to make the markets work for me over the years. So, I thought, "It's time to give something back". As with help files, many "Stocks 101" entries on the web tell you everything you (may) already know but skip the simplest aspects, assuming one would know them. My first posts will be short and complete regarding how to use different types of orders to buy and sell stocks.

When I started trading I had to read long explanations of strategies regarding order types, but all of those pages were missing simple information on how to use orders, how to enter orders and what will happen as a result of each. I already knew what I wanted to do, I had my own strategy, but key information was missing. I won't tell you how to trade, and I won't bother to tell you if it's risky or not. Those are your choices - consider that a disclaimer.

The following posts are simple examples of trades, how to enter them, and what the result will be. We'll use XYZ as the stock symbol and some basic round numbers of that non-existent stock.

Your trading interface may look different, but the fields should be similar.

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