David Waring

In our last lesson we looked at how to place an order to buy a stock below the market or sell stock above the current market price, with orders that are known as a stop and a stop/limit order. In today's lesson we are going to look at the three main ways that traders close positions with the use of market, stop, or limit orders.

Once you have opened a trade, it should show up under the position section of your trade tab, in the equities section of your account tab, and in the position statement section of your monitor tab. I personally prefer to work off of the trade tab, however positions can be monitored and closed from either of these three locations in the same manner I am about to describe using the trade tab.

The simplest way to close a position, is to click the blue arrow beside the position you would like to close, which will bring up the trade information for that stock. Beside where it says STK in the window that appears you will see a little blue dot. If you click on this dot a dropdown menu will appear, and the first option in that drop down menu should be an option which allows you to close the position.

Select this option and the order window will automatically be populated with the opposing trade. For this example I have chosen to close my long position in Microsoft. You can see here that the order window defaults to closing the position with a limit order, but since I don't want to have to worry about waiting for the market to reach my limit price before getting out, I am going to change that to market, and then send the order to be executed.

Lets say that I have placed a trade and am not ready to close the position out, but would like to be protected in the market moves against me or taken out automatically at a profit if the market hits my profit target.

Just as stop and limit orders can be used to open trades once the market hits a certain price, they can also be used to offset or close an open position. Lets say for example that you bought 100 shares of Microsoft at $26 a share. If the price trades up to $30 per share, then you want the platform to automatically close the position so you can lock in your $4 profit without having to be at your computer.

To do this you would simply place a limit order to sell 100 shares of Microsoft at $30. Similarly, if you want to be taken out of the trade at a loss if the market hits $24, then you would simply place a stop order to sell 100 shares of Microsoft if the market hits $24 per share. Both orders will show as working in your order book until the market trades to either $30 a share or $24 a share at which point the order would activate and your open position would be closed. The one thing to remember here is that if you want the stop and limit order to be active until you cancel them, then you need to select "GTC" or good till canceled under the rules section of the order window.

The one problem with placing both a stop and a limit order to exit a trade, is that if one of the orders is hit and closes out your open position, then the other still remains active until you cancel it. In situations such as this if you are not able to cancel the order which was not activated before the market trades to that price, then you will be left with an open position in the market, as the open trade that this order was placed to offset has already been closed.

Luckily there is an order type called "one cancels other" or OCO for short, which offers traders a solution to this issue. This will be the topic of our next lesson so I hope to see you then. As always if there are any questions or comments please leave them in the comments section below, and good luck with your trading!

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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.