Your first order
Here you go through your first purchase step by step, with the checks to make before sending. It's meant for a demo account or a very small real amount.
Learning objective: After this lesson you can place a first order in a demo account calmly and with the necessary checks.
Step one: decide beforehand what you're buying and why, and write it down. Two sentences are enough. If you can't do that, the purchase isn't due yet.
Venue and Order Type
Step two: choose the trading venue and the type of order. To start with, a limit order just above the current price. Then you know the most you'll pay, and the order will still almost certainly be filled. If the buying price is €80.10, you could for example set a limit of €80.20.
Checking the Preview
Step three: check four things in the preview. Is it the right security? Is the number of shares right, and didn't you accidentally enter an amount in euros? Is the order type right? And how high are the displayed costs relative to the amount?
Sending and Reviewing
Step four: send, and then do nothing. In the evening look at what was filled at what price, and write it in your journal. The purchase itself is a rather unimportant part of the whole thing.
A limit order just above the buying price combines an almost certain fill with a ceiling on the price. How far above depends on the spread, usually about its size. If the gap is too small, the order might not be filled. If it's too big, the limit hardly protects you anymore.
Costs on Small Amounts
With small amounts, what matters most is how large the fixed costs are relative to the order. A €5 order fee is five percent of a €100 order, but only 0.25 percent of €2,000. That gives you a sensible minimum size for your orders, above which the fee no longer makes up most of it. Many savings plans avoid the problem because they cost no fees or only very small ones.
Checking the Statement
After the fill, check the contract note: number of shares, price, all fees and the trading venue. Compare your price with the price on a major exchange in the same minute. That's reliable information about how well your provider fills your orders, and over several orders it tells you more than advertising does.
Summary
- Write down two sentences of reasoning before buying.
- In the preview, check security, number of shares, order type and costs.
- With small orders, fixed costs make up most of it.
Did you get it?
Why a limit order just above the current price?
It's almost certain to be filled and still has a ceiling on the price.
What's the main problem with small orders?
Fixed costs make up a large part of the amount.
How do you check how well your order was filled?
You compare your price with the price on a major exchange at the same time, ideally over several orders.
Check your understanding
Your task
The price is $45.30 and you want to buy 20 shares. Set a limit just above the price and work out the most the order can cost, not counting fees. Beforehand, write two sentences on what you are buying and why, then place the order in a demo account.
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- Order typesStage 2
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- Comparing brokersStage 2
- Paper trading simulatorSimulator
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