What Are Buy to Cover Orders (Stock Purchases)?

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What Are Buy to Cover Orders (Stock Purchases)?

Within the buy to cover orders, there are 4 options in which to place onto your stock purchases.

When you buy to cover on a market order, you are in agreement that you will purchase the stock at the current market price, however, because there is a lag between the time you agree to purchase the stock and the actual transaction, a price difference could occur. You could end up paying more than anticipated for each stock, or a considerably lower amount per stock, which is what you are hoping for. You can also buy to cover limit orders, in which guarantees that you will pay no more than the set limit price. However, if stock prices stay above the limit price, this type of buy to cover order will never be executed.

This type of transaction is typically used by investors who are trying to get into a certain market. You may also want to buy to cover stop orders in such case the stop orders become simple market orders as soon as the price is at or above the stop price. This type of order should be used to get you out of an unfavorable market so that you will not lose any profits. And, last, you may choose to buy to cover a limit order that converts to limit order only when the market price is at or above the stop price. You must become familiar with each of the buy to cover orders so that you can make educated decisions about your investments.

From one decision period to the next in the stock market game, the market moves up and down non-stop, meaning that prices of stocks are at a constant changing point. You may think about purchasing a certain stock at $65 per share, and in the next second, the price per share has risen to $165 per share.

This is where the gambling of the stock market comes into play. By learning the advantages of the buy to cover orders, you can increase your chances of earning money on the stock exchange instead of losing money. The most obvious advantage to all of the buy to cover options is that they are in place to make you money, when executed properly. For example, you would not execute a stop loss on a stock that has steadily increased over a 4 month period. If you did this, you would force yourself to waste money to buy the stock in order to cover your mistake. You decide to buy 175 shares of stocks from Albertson's, a grocery store chain, at $75 each, for a total investment of $13,125. Over a four month period, you notice that the stocks have gained in profit, and you would like to do something to ensure that you keep this earned profit. Not knowing any better, you put a stop loss of $50 per stock without consulting your stockbroker. From that point forward, if your stock decreases to $50 per stock, you are forced to sell it, and any previous earned profit is null and void. The only chance you have in gaining back that profit, is if you are quick enough in the non-stop stock market game, to purchase the Albertson's stocks before someone else does. However, even if you are able to do this, you have still suffered a great loss monetarily.

This is why you must educate yourself BEFORE playing the stock market game.

As with any game, there is some form of risk involved, however, when playing the stock market game, you can prevent a great deal of heartache by simple taking the time to gain knowledge about all types of order you are able to place on your stocks. If you need help learning about types of orders to place on your stocks, you should consult your well-trusted stockbroker in order to seek professional advice before taking matters into your own hands, inevitably forcing yourself to lose your invested money's profit. Thus, it is absurd to invest your hard earned money into any program before you know all the facts necessary to make a well-informed, educated decision.