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Questions to ask yourself before you trade

Here are some of the choices you'll need to make to trade online.

POINTS TO KNOW

  • Common stock is the type of stock that investors purchase most frequently.
  • Holding a stock "in street name" makes it easier to sell it later.
  • There are 4 order types for buying and selling stocks and ETFs.

What type of stock do you want to buy or sell?

Common stock is, as the name suggests, the purchase investors make most frequently when they want to own a piece of a company. Your other choices are: preferred stock and foreign stock.

How do you want to hold the stock?

When you buy shares of a stock, you can have the stock registered in your name or you can have Vanguard Brokerage hold the shares "in street name."

Instead of getting a paper stock certificate with your name on it, the record of your purchase of stock shares is usually stored electronically.

This arrangement is beneficial for 2 reasons:

  • We can easily and safely transfer securities between parties if you sell your shares. You don't have to deliver paper certificates to us.
  • It's safe. You don't have to worry about the loss of security certificates or their costly replacement.

In addition, you'll receive comprehensive account statements, tax documentation, dividend management, and help with corporate actions and exercising employee stock options.

What about dividends?

If Vanguard Brokerage maintains your securities, all dividends and interest earned are credited to your money market settlement fund unless you choose to reinvest them in additional shares of the security that issued them.

If you hold the securities in your name, payments will be sent directly to you by the company you've invested in.

What type of order do you want to place?

You can select from 4 order types when buying or selling stocks or ETFs:

How long do you want your order to remain in effect?

You have 2 options:

  • Day order: Your order will expire automatically at the end of the trading day if it's not executed or canceled.
  • 60-day order: Your order will expire in 60 days if it's not executed or canceled. This order is also known as a good-till-canceled order.

Next step: Gather your information

You're now ready to place your order. It helps to have this information handy:

  • Account you're using.
  • Name and ticker symbol of the stock or ETF you're buying or selling.
  • Number of shares. (You can't request a trade by a dollar amount.)
  • Order type.
  • Duration.
  • Your Vanguard money market settlement fund balance (if you're buying shares).

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REFERENCE CONTENT

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Common stock

A security that represents ownership in a corporation. Holders exercise control by electing a board of directors and voting on corporate policy. In the event of a company's liquidation, common stockholders have lowest priority and receive assets only after bondholders, preferred stockholders, and other debt holders have been paid in full.

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Preferred stock (security)

A security that takes precedence over common stock when a company pays dividends or liquidates assets. Preferred securities do not usually carry voting rights.

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Foreign stock

Stock of companies based outside the United States or that are represented by American Depositary Receipts (ADRs).

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Share

A single unit of ownership in a mutual fund or an ETF (exchange-traded fund) or, for stocks, a corporation.

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Corporate action

Any action by a company that affects its shareholders, such as mergers and stock splits.

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Employee stock option

An option given to a company's employees to buy a certain amount of stock in the company at a certain price within a specific time period.

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Dividend

The distribution of the interest or income produced by a mutual fund's holdings to the fund's shareholders, or a payment of cash or stock from a company's earnings to each stockholder. Dividends can be distributed monthly, quarterly, semiannually, or annually.

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Interest/Interest rate

Income you can receive by investing in bonds or cash investments. The investment's interest rate is specified when it's issued.

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Settlement fund

A money market mutual fund that holds the money you use to buy securities, as well as the proceeds whenever you sell.

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Limit order

An order to buy or sell a security at a specified price (limit price) or better. The execution is not guaranteed.

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Market order

An order to buy or sell a security at the best available price. Immediate execution is likely if the security is actively traded and market conditions permit. Execution price is not guaranteed and can vary during volatile markets.

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Stop order

An order that triggers a market order once a specified security price (the stop price) is reached. The order may execute at a price significantly different from the stop price depending on market conditions.

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Stop-limit order

An order to buy or sell a security at a limit price or better once a specified price (the stop price) is reached. It's possible for the stop price to activate without the order executing in fast-moving market conditions.

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Volatility

The degree to which the value of an investment (or an entire market) fluctuates. The greater the volatility, the greater the difference between the investment's (or market's) high and low prices and the faster those fluctuations occur.