Here we consider basic (possibly multi-step) actions involving various negotiable instruments in the market.
Buying and selling
Basic actions in a stock market are to buy or sell a security. The securities exchange has programs/ machines which effectively communicate the price of various stocks based on what prices people are asking/ willing to pay for them - by recording these bids.
Market price order
A market order is an order to buy or sell a stock at the current market price.
Market price trigger
Aka Stop order. A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price (the stop price). When the specified price is reached, your order becomes a market order.
With such orders, one can trigger buying or selling; this is a common technique used by agents for preventing excessive loss.
The disadvantage is that prices could fall rapidly between the trigger and the trade, so that securities are sold at very low prices - this happened in the 2010 Flash crash.
Market opening/ closing trigger
These orders become a market order at the opening/ closing time of the market.
Price Limit order
One may want to buy or sell at or beyond a preset price - but this is only possible when there exist sellers or buyers willing to transact at that price. So, these actions are conducted at an appropriate time by computer programs acting on behalf of the investors.
Price limit order by an agent ensures that the transaction occurs only if it is not too unfavorable to the agent.
Market price trigger
Aka Stop-limit order. Once the stop price is reached, the stop-limit order becomes a limit order.
Stop-limit orders improve on stop orders in that: not only do they act on a similar trigger, but they are processed only if the price limit is met for the transaction.
Order size and price
Small ’sell’ orders trade for the highest available bid in the market, whereas large ’sell’ orders may exhaust high-price bids and may actually sell at a lower average price.
Multi-step Trading strategies
Duration
The duration required for the entire trade varies. For example, while holding a long position, one can hold on to a stock for a short time - as in day-trading; or one can turn it into a long term investment.
Buy, sell
One can buy a security at a certain time, in the hopes that it will increase significantly in monetary value - at which point one can sell the security to make a profit.
Borrow, sell, buy, return
Aka Shorting.
Or one can borrow a security at a certain time, sell it immediately, and buy it in the future at a hopefully lower price to return the borrowed security, - aka shorting. So, one is betting that a certain security will loose value. Or, one can do this by buying credit-default swaps.
Sector ETF + company trading.
Aka Pairs trading. Here agents act on the belief that a certain company will outperform or underperform relative to other companies in the sector.
They take advantage of the outperformance belief by holding a short position of a certain amount on the sector ETF and holding a long position of the same amount in the company in question. Similarly, they take advantage of belief in underperformance by holding a short position on the company and a long position on the sector ETF.