Trading Hours
Executing an order is a fancy way of saying buying and selling investments. The buy and sell orders are relatively simple, once you get the hang of them. Exchange-traded funds (ETFs) and stocks are traded during trading hours (9:30 am - 4 pm Eastern Time during weekdays). Mutual funds are traded once a day at the net asset value which is determined after trading closes.
This means that if you place an order for a mutual fund after hours, it will not be executed until the end of the next business day. An after-hours ETF or stock trade will occur the next trading day. While some brokerages allow after-hours trading, it is generally riskier due to lower trading volume. Stick to the normal stock market hours.
Available Balance
Make sure you have money in your settlement fund available to trade. Often, a contribution or proceeds of a sale may require a few days to be moved to a settlement account. If you execute trades before the money is in the settlement account, you may incur violations. Any trade must be settled within two days of the trade date. If you incur violations, your account may be restricted.
Order Types
Pull up the trade ticket at your brokerage. Enter the ticker symbol of the investment you want to buy or sell. Take a look at the quote. If you are buying an ETF or stock, you should see an "ask" price and a "bid" price. The ask price is the lowest price at which sellers are willing to sell the ETF or stock. The bid price is the highest price that buyers are willing to purchase the ETF or stock. Select Buy or Sell. Avoid short selling as it is more about speculating than long-term investing. Next, you will need to select the type of order you want to execute.
Market - the order will execute immediately for the best price available. A purchase will occur at the "Ask" price. A sale will occur at the "Bid" price.
Limit - the order will execute at a requested price or better. The order will be executed only if the requested price is triggered. A purchase will occur at or below the limit price. A sale will occur at or above the limit price.
Stop - This order is used to stop losses. When you set a stop price, it triggers a market order. A purchase will execute at or above the stop price (which is set above the market price). A sale will execute at or below the stop price (which is set below the market price). The tricky part is that the order is triggered by the stop price, but the order will be at the market price after the stop price triggers the order.
Stop Limit - This is exactly like it sounds. You have a stop order that triggers a buy or sell order, but instead of triggering a market order, it triggers a limit order. A purchase will be executed at or above the stop price, but at or below the limit price. A sale will be executed at or below the stop price, but at or above the limit price.
Now that your head hurts and you've read through those definitions twice, be comforted by the fact that you will likely only need to use the market order and limit order regularly. Let's consider a market crash.
As a buy-and-hold investor, you have set your asset allocation at the appropriate percentages for your risk tolerance and timeline. The market crashes. You are likely in one of two positions:
You aren't worried because you have time for the market to recover.
You have a conservative allocation because you are near retirement.
In both scenarios, the market crashes and you do nothing (or maybe you buy more since everything is on sale). The market recovers and you go about your business.
If you are not a buy-and-hold investor, you might have a stop limit order in place. The market crashes and you sell your volatile investments. Now what? When should you buy back in?
You can set a limit order to purchase the same investments back at the same price
You can set a limit order much lower than your recent sale price.
You can be distracted by a major life event and be unaware you need to set a new limit order.
In the first scenario, you break even when the market recovers. In the second scenario you either make a profit, or the price never goes that low and you don't reenter the market and miss out on the recovery. In the third scenario, you completely miss out on the recovery.
I won't tell you to never use a stop order or stop limit order. But I will tell you that it introduces more opportunities for human error and emotion, likely stress and doubt. So consider different scenarios and how you want to deal with them. I prefer dollar cost averaging and letting the market go where it may.
Timing
Back to your trade ticket. Now you get to determine how long this order is in place. Each brokerage may have variations available, but generally, you have the option to leave the order in place for a day or an extended, set period of time, aka GTC (good till canceled). Limit orders may also include the option to "fill or kill" or "immediate or cancel". Fill or kill means that the order must be filled in its entirety immediately or the order will be canceled. Immediate or cancel allows the order to be partially or fully filled immediately, or canceled.
Final Steps
The final step is to choose your quantity (a dollar amount if you are trading mutual funds and a share quantity if you are trading stocks or ETFs). Indicate if you want to reinvest dividends. I prefer to reinvest my dividends so that my portfolio keeps compounding. If you are in retirement or are living off of your taxable investments, you may decide not to reinvest dividends. Double-check everything. Execute. You are now investing.