Question

1) What type of orders—market, limit, or buy stop—do you intend to use when purchasing stocks? Do you intend to pay with cash or buy on margin? Why?

2) What type of brokerage firm will you work with — full-service or discount/online? Why?

3) Summarize your decision on the type of orders you will place to purchase stocks and your preference for using cash versus buying on margin.

Answer 1

(1): When purchasing stocks I will make use of limit order so as to be able to ensure that I buy the stock at a specific price or a better price. Limit orders may or may not get filled depending on the movement of the market but I will still use this method as I will be guaranteed that in case the order is filled it is at the chosen price or at a better price. I will be able to set my own parameters.

I intend to buy on margin as this method will enable me to leverage my position and borrow against the value of assets in the account to purchase new positions. I will be able to profit from bullish and bearish moves in the market as well.

(2): I will use a full service brokerage firm because a full service brokerage firm provides advisory. I can use their advisory to make informed decisions and this will help me buy good stocks and will increase my chances of booking good profits in the long term. Secondly full service brokerage firms will allow me to buy different options as well like mutual funds, ETFs etc.

(3): To summarize I will use the limit order to buy stocks because I will be able to specify the maximum price at which I am willing to buy a stock. This type of order will ensure that my price considerations are met and hence I will have more control on the transaction as the buyer. My preference for buying on margin is simple that it will allow me to buy more stocks than I will normally do in case I buy using cash. While this is risky it will increase my purchasing power and will enable me to take advantage of financial leverage.