Page 40 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

Table 6.2 Order Types Determined by Category

Limit of Risk Speed of Fill Control of Time to Fill Advanced
Price
Stop Market Limit Day Order Conditional

Stop Trailing Market If Touched Limit If Touched Fill or Kill One Cancels All
Stop Limit Market on Open Limit on Open Good ‘Till Cancel Basket
Market to Limit Market on Close Limit on Close Good ‘Till Date Spreads
Block Pegged to Market Block All or None Volatility
Determining your order type will help you achieve a goal whether it is limiting risk, speed of execution or improvement
of price. This table is an overview of some types of orders and what they can achieve for you. Keep in mind that
when you place your order the fill you received depend on market dynamics and liquidity. There is no guarantee on
the outcome of any order you place that it will fill at your optimum desired price or time.

Using Margin and Leverage

The definition of margin is: borrowed money that is used to purchase securities.

This practice is referred to as buying on margin. Using margin can dramatically
increase risk because both gains and losses are amplified. That is, while the potential
for greater profit does exist, it comes with a heavy price; the potential for loss is great.

Margin also subjects the investor to additional risks such as interest payments for using
the borrowed money.

Adding margin to your plan is like trading on a day trading time frame vs. trading on an
investor time frame: it speeds up the action. Information will come at you more
quickly, the size of your losses and gains come at you more quickly, and your reaction
time must be lightning speed. You will need to determine what the impact of margin has
on your stress level and trading psychology.

Meaning, are you a more profitable trader using margin or not?

Another way to look at margin is purely as a debt, and in the corporate world debt ratios
can determine the health of an entity. Too much debt means a generally unhealthy
company. But, debt can also be a positive tool. For example, debt can fund a new
startup company that can change a generation.

Just as when young 20-year-old Mark Zuckerberg got his first investment of $1,000, and
a few months later $16,000 to launch Facebook in 2004. In the beginning Zuckerberg
took on proportionally high risk and high debt. That assessment is given that at the start,
Facebook generated zero revenue. Now of course, in the year 2011, just seven years
from the launch, Facebook has a corporate value of around $15 Billion and Zuckerberg
became the youngest self-made billionaire in the world (at age 24). So, you can see
how that turned out.

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