What Is Considered a Trade in Stocks?

by Tim Plaehn ; Updated July 27, 2017
A stock trade is the act of buying or selling shares.

For stock market traders and investors the trade is how things get started. The term "trade" has several meanings in stock market jargon, each dependent on the context. After a new investor understands the different meanings of the word, the more advanced trading techniques will make sense.

Identification

As an action, trading or to trade is the buying and selling of stocks. A trade is the result of a single action to buy or sell. If an investor makes a trade, he has purchased or sold. A trade can also be thought of as an order to buy or sell stock.

Function

A trader or investor places a trade by entering a buy or sell order in through a stock brokerage account. This is often done online using the stock trade screen of the broker's website. Until the order is filled it is a pending order or pending trade. When the order is filled it is a completed trade. A trade can be placed to either buy or sell a specific security.

Types

There are several types of trades used when trading stocks. A "buy to open" trade purchases the stock for the investor's account. A "sell to close" trade would sell currently owned stock out of the investor's account. A trader can also enter a "sell to open" trade. This is called short selling when a trader sells shares he does not own. To close out a short position the trader enters a buy-to-close trade or order.

Time Frame

Day traders may place a trade to open a position then use a closing trade to close out the position a few minutes to hours later. Long-term investors buy stock with an opening trade, then may own the stock for months or years. Modern online stock trading allows trades to be filled in a few seconds. An investor can enter a trade using the broker's trading screen and see the stock in her account within a few seconds.

Features

New stock market investors should know about trade settlement. Stock trades are finally completed or settled two business days after the investor places the trade order with her broker. The settlement time allows the investor to bring stock certificates to the broker if the shares have been sold or deposit money to pay for stock purchased. In the modern world of electronic stock trading, the buying and selling happen almost instantly, but there may be some restrictions on stock purchased or cash from a sale until the trade has finally settled.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

Photo Credits

  • business charts with buy image by Andrew Brown from Fotolia.com