After due deliberation—and possibly many changes of mind —you've decided that your first investment will be in a public utility, say, Consolidated Edison. It supplies gas and electricity to the five boroughs of New York City and to most of wealthy, suburban Westchester County. Its divi­dend has been increased 75 per cent as a result of six jumps in the past ten years. At its present price in the low 60's, the dividend of $3 means a yield of just about 4.8 per cent. All in all, it looks good.

Baying and Selling Round Lots

You phone the brokerage house where you've established your account and speak to your customer's representative. "I'd like to buy 100 shares of Consolidated Edison common at the market," you say. You specify common stock because Con Ed also has listed a $5 preferred issue, and you say "at the market" because you are content to pay whatever price prevails, or can be negotiated, when your order reaches the trading floor.

That's all you have to do.

Your representative has noted your market order on a pad of "buy" forms. He gives the note to the order clerk, who phones the order over the firm's private wire to a clerk on the floor of the Exchange, who, in turn, transmits it to the commission broker. The broker goes to Post 5 and asks the specialist, "What's Con Ed?" "62 to a half," the specialist replies. Or, if the stock is being actively traded and it can be assumed that any broker would know the stock is in the 60's, he'd say, "2 to a half." Sixty-two dollars a share is the highest price anyone is bidding to buy; $62.50 is the lowest price at which anyone is offering to sell.

At this point, the price you will pay is at the discretion of the broker. He is acting as your agent; he will do the best he can. But there is a certain time pressure on him. You want the stock "at the market," which means now, and your order implies that you realize the market may be a fraction, a point, or even more, above or below what it was when you made up your mind to buy, when you called in your order, and when your broker reached the post.

A glance at the price panel at the post indicates a plus sign, meaning that the last sale was at a price higher than the one preceding. If your order has arrived at mid-morning and your broker has already done some business in Con Ed, or seen its performance on the tape, he may realize that the stock is advancing rather than retreating. Perhaps the broker traffic around the post represents six or seven orders to buy, which total 800 shares, and only four or five orders, totaling 600 shares, to sell. The law of supply and demand comes into play, and the broker knows he will have to go higher than 62 to execute your order.

If the bidding goes high enough, a larger supply of stock may be lured into the market as other Con Ed shareowners, noting the spurt, decide to take a profit. Other investors, observing the action in Con Ed, may decide to get aboard, thus keeping the buying pressure up. The tide will turn— over a period of hours or days—when the price goes high enough to discourage buyers, or when the supply of stock to be sold outweighs the orders to buy. Then, to attract buyers, the price may have to recede.

"One-quarter for 100," the broker says to the specialist and the other brokers around the post. He is trying to buy the stock for you at $62.25, or $.25 a share less than the lowest selling price.

Pressure is on the broker selling at the market, as well. He has to judge how eager the eager buyers are, and he can't spend all day waiting to find out. Is anyone going to get up to $62.50 a share, or should he come down?

"Three-eighths for 100," your broker calls out, trying again.

The selling broker decides to accept. "Sold at 623/8," he says. This is $62,375 per share, or $6,237.50 for the lot, ex­cluding the commission.

Each broker makes a note of the transaction and the person with whom the deal was made. Each one also re­ports to his phone clerk, who informs the brokerage house, so that the representative can call the customer involved to tell him that the trade has been completed and at what price.

The selling broker informs an Exchange employee, called a reporter, of the details of the transaction. The reporter records them on a slip of paper which is shot by pneumatic tube to the offices of the New York Quotation Company, a subsidiary of the Exchange located on an upper floor of the building. From there the information is transmitted simultaneously to the 3,291 stock tickers of the nationwide ticker network.

The sale to you will show up on the tape as ED 623/8. In a normal day, the ticker service is so fast that your sale will appear before your representative can call you.

The indicator at the post will be changed to reflect the new price, and the plus sign will remain beside it to show that your trade—the last sale—was again higher than the one preceding.

The auction around the post, meanwhile, has resumed. The brokers for other buyers and sellers are negotiating around a new price range, seeking a trade.

A sale, naturally, reverses the procedure. The broker arrives at the post to see how high a bid he can extract for the 100 shares he has to sell. "Offer 100 at ½," he says, after learning the bid-asked range. A buying broker may counter with a higher price, or decide that $62.50 is the best he can do and accept. "I'll take it," he says.

Again, the trade is recorded by the brokers, and yours, as the selling broker, takes responsibility for informing the reporter, so that the ticker tape can spread the news without delay.

These descriptions, of course, are simplified to the ex­tent that they are limited to single, round-lot transactions. (Odd lots will be discussed further on). Action around a post can become quite heated if a number of buy and sell orders are being matched at the same time, and bids are pushing the price up or offers depressing it. The broker must keep his wits about him. In the customer's best interest, he cannot afford to be hasty and act before he ascertains the market trend. Neither can he dally and thereby "miss the market."

Every so often, two bids (or offers) will be made si­multaneously for the same block of stock. In the absence of other stock at the same price, it is floor procedure for the two bidders to flip a coin to decide who gets the stock. The winner, of course, executes his order. The loser reports back to his customer: "Matched and lost."

"At the market" is probably the most common type of order. In acquiring or unloading an active stock, or if the need to buy or sell is urgent, this is definitely the procedure to use.

It is always good practice, however, to ask how the market is doing before placing an at-the-market order. In an active, or liquid market, the number of bids and offers pouring in keeps the price gap narrowed to small fractions. In what is called a "thin" market, price differences and fluctuations tend to be wider. An inactive stock, or one in which both the supply and the demand are temporarily limited, may have a bargaining area that spans three, four, or five points. A transaction completed at the market in these situations may mean a purchase or sale at an unexpectedly high or low price.

Limit Orders

All buying and selling techniques other than at-the-market come under the heading of "limit orders." These specify a price at which the customer wishes to buy or sell and, where necessary, will indicate the period of time for which the order applies.

Looking the market over, you might decide that Goodrich is a good investment, but a little high at its present price of 88. Or you might decide the market is due for a drop of a few points, but that you can't be sure when the break will come. In either case, you can place a limit order with your representative to "buy 100 shares of Goodrich at 85."

As usual, the order will be phoned to the floor broker. If the price at the post is 88 or better and shows no signs of weakening, the broker probably will have the order entered in the specialist's book for execution when, as, and if the price turns down.

At 85, or lower if subsequent trades should knock the price down without pause at 85, the order will be executed.

Unless a time limit is specified, the order will be con­sidered as good only for the day on which it is received, and will be canceled at the close of trading if the anticipated price has not been realized.

If the customer is prepared to wait a while to achieve his price, he can ask that his purchase of Goodrich be an open order, or G.T.C.—good till canceled. Otherwise, he may specify that his bid at 85 is a day order, good only on the day it is given; good through a certain calendar date; G.T.W—good this week; or G.T.M.—good this month.

Many brokerage houses remind their customers at week's end that they have one kind of limit order or another "in open," and at the end of three months ask for written confirmation that the open order is to be continued. If the order is not then confirmed, it is canceled.

Another useful kind of limit is the "immediate order," which enables the investor to peg his anticipated buying or selling price somewhat more in accord with actual market conditions. If, for instance, you had ordered the purchase of "100 shares of Goodrich at 85 immediate," it would mean that the floor broker should execute the order promptly at that price or better if possible, but if not, should consider it canceled and report back the current price.

Upon learning that the current market was around 88, you could then decide whether to enter another limit order at, say 86, or 87 which, given the trend, might have a better chance of being filled.

A limit can be applied to a sell order, as well. If you de­cided you would not sell Goodrich below 90, the price in this case would have to rise two points before your order took effect. On the other hand, if you had specified 86 as your price, the broker finding the market at 88 would sell im­mediately, and improve your net by $2 per share.

Occasionally, you will place a limit order, see on the tape that several transactions were completed at your price, but later learn that yours was not one of them. "Sorry," says your representative. "Stock ahead." Since limit orders in a specialist's book are filled in the order in which they are received, the sad words "stock ahead" simply mean that the supply of stock available for purchase at the limit price was exhausted by other orders before your turn came. In this case, you can cancel your order or, now that you are nearing the top of the specialist's priority list, keep it open, hoping another opportunity will arise at your price.

The Stop Order

Active investors who are in the market for capital gains, and who keep a close watch on price trends, frequently use a device known as the "stop order" to help protect their profits or limit their losses. The stop order first appeared some 50 or 60 years ago, and for most of its life has been popularly referred to as the "stop-loss" order. Because there are no guarantees—real or implied—against loss in any mar­ket, however, the New York Stock Exchange now insists on the term "stop order."

Here is how it works. Let's say that you bought 100 shares of International Nickel at 97, and that it is now at 110. To give some measure of protection to your thirteen-point gain, you enter a stop order to sell at 104. If the stock should drop to this level, your stop automatically becomes a market order to sell, thus preserving seven of your 13 points. If, however, the stock should continue to advance, the stop can be moved upward, point by point, behind it. At 115, the stop could be pegged at 109. At 119, it would be 113.

A stop can also be entered at the time of purchase, to try to limit losses. This is a favorite maneuver of margin buyers. An order to buy, say, at 70, is accompanied by an order to "sell at 67 stop." If the stock advances, the stop is moved up a reasonable distance behind it. If it drops and the buyer is sold out, bis loss, hopefully, is minimized to $3 a share.

On the short side, the stop serves the same purpose. If you have sold Nickel short at 110 and it is now at 104, your six-point profit can be somewhat protected by a stop order to buy at 107. Should the decline continue, the stop can be lowered behind it. If it should turn around and advance to 107 or beyond, the stop is caught, and the shares necessary to cover the short position will be bought.

Or, again, the stop can be entered at the time the short sale is made, to limit losses in the event of a rise.

Unfortunately, there are no sure things in the stock market. Used with keen judgment and a sensitive touch, the stop order can afford the protection just described. However, it can also work out adversely.

If the stop is placed too close to the market—and two points away is the usual peg—it is quite possible that the market will dip briefly, catch the stop, and then march briskly upward before the buyer can get aboard again. Specifically, if you have a 6-point profit in Nickel at 102 and place a stop at 100, a momentary decline could sell you out with only 4 points realized, while the stock, meanwhile, is jumping to 108 or 110. Even if you reacted swiftly enough to benefit from the rise, part of it would be absorbed by commissions on the stop sale and the necessary repurchase.

Likewise, in a thin market, a stock can fall through a stop so fast that a considerable loss may be taken before the sale is effected. For the stop cannot guarantee that you will receive the indicated price. You will get your price if the stock pauses at that level. Otherwise, you are sold out at the first available resting place, which may be several points below what you anticipated (on the long side; above on the short side), thus cutting your profit margin.

Stops can be placed farther away from the market, but this will be at the expense of the profit you are attempting to protect. A stop five points away, when you have only seven you are trying to guard, is hardly worth the trouble.

Some students of the market argue that entering a stop at the time stock is purchased is fundamentally unsound. Unless an upward trend is reasonably clear and certain, they say, you are better off not buying at all. A stop may limit your losses, but a climate of possible loss is not one in which to buy.

Another consideration is the fact that your stop order is, of course, not the only one outstanding. In rare instances, it is possible for an accumulation of stop orders at varying prices to "snowball," an unhappy situation in which one stop triggers off another, and so on down the line, until the stock is depressed to an artificially low level. For instance, a sale at 60 catches a specialist's stop order to sell 500 shares at that price. With 500 shares available in the open market, it could be that the next best offer would be 595/8. This sale, however, catches another stop which casts, say, 300 more shares onto the market. These go for 59½ and set off another reaction, this time of 1,000 shares. The steady supply of stock, particularly in the face of weakening demand, will push prices down, each time triggering another stop, another drop. To control this chain reaction, however, the Floor Gover­nors of the New York Stock Exchange may suspend stop orders if, in their judgment, price movements are being unduly accentuated. This cancels all stop orders in hand and prohibits acceptance of new ones until further notice.

The Stop Limit Order

This is a variation on the stop which specifies the stop price you hope to catch and, in addition, the price below which a sell order (or above which a buy order) must not be executed. For instance, an order to sell at 64 stop, limit 64 means that when the stock drops to 64 the stop goes into effect and the specialist now is acting on a limit order to sell at 64—and at 64 only. He cannot sell at 63½ or 62, as he could if either of these prices were the first resting place for a stock that had dropped through an ordinary stop. In other words, the specialist has no option, as would be the case with a market order, to try to obtain the best price possible at the moment.

To avoid some of this rigidity, an investor might place a stop limit order specifying one price for the stop and another for the limit order—say, 64 stop, 62 limit. This means that should the stock sag to 64, the stop is caught and the limit order goes into effect, but this time with a two-point lee­way for the specialist. If the stock drops through the stop, say, to 63½, the specialist has elbow room in which to sell, so long as the price does not go below 62.

When it is properly calculated, the stop limit order is beautifully precise, but its big disadvantage, as can be seen, is its extreme rigidity. Fluctuations greater than anticipated can leave the buyer or seller high and dry, while his stock plummets or rises out of reach of his limit.

For the investor whose objective is dividends or long-term appreciation, the stop order and its variations are of no consequence. For the investor depending on capital gains over the short term, they have their advantages when properly applied.

Stopped Stock

One other technique, often confused with the stop order, is "stopped stock." This is a way of guaranteeing purchase or sale of stock at a certain price while hunting for a deal at a better level. If the last sale of Shell Oil was at 37½ and the lowest offer is now 38, the broker with an order to buy at the market may feel he can acquire a block for his cus­tomer at, perhaps, 37½. At the same time, he doesn't want to miss out by having the stock rise to 39, so he asks the specialist to "stop 100 at 38." The specialist can do this only if more than 100 shares are offered at that price. In this event, you are guaranteed stock at no more than 38. Orders in the specialist's book take precedence, however. If there is not enough stock to supply orders at 38, the stopped-stock request cannot be honored. On the other hand, should a market order or a limit order to sell at less than 38 come on the scene, you will get your stock at the cheaper price.

Buying and Selling Odd Lots

Odd-lot transactions, as has been noted, are those involving the purchase or sale of one to 99 shares. Since the basic unit of trading on the major exchanges is the 100-share round lot, there is literally no market price for, say, 25 shares of Bendix Aviation. If the round-lot price is 73, however, an odd-lot dealer will sell 25 shares at 73¼, the ¼-point, or $.25, per share being his fee for the services he performs. (If the stock sells at less than $40, the fee is ⅛-point, or $.125, per share).

In practice, the market price to you is the first round-lot price at which the stock is traded after receipt of your order on the floor—plus the ⅛- or ¼-point if you are buying, minus the ⅛- or¼-point if you are selling.

An "at-the-market" order to buy 25 shares of Bendix starts out on the same route as a round-lot order, with a phone call from your brokerage house to the floor clerk. In this case however, your order, instead of being given to a com­mission broker, is sent by pneumatic tube directly to the odd-lot broker stationed at Post 18, where Bendix is traded. A trade perhaps has just been completed at 73½. This is not your price. The next round lot sells for 73. Now the price to you is established. Adding his ¼-point fee for an issue priced over $40, the odd-lot dealer sells 25 shares of Bendix to you from his inventory for 73¼.

He informs his odd-lot house of the transaction, and your broker, via the telephone clerk, gets word back that your order has been filled. No report, however, will appear on the ticker tape.

An odd-lot sale is, again, the reverse. If the first round-lot sale after your order hits the floor is 74, the price at which the odd-lot dealer will buy from you for bis inventory is 73¾.

It is possible to get immediate action on an odd-lot order by specifying that you want to trade "without waiting." This means that you are willing to buy at ⅛ or ¼ above the existing offer or sell at ⅛ or ¼ below the existing bid, without waiting for a price to be established by a round-lot sale.

Limit Orders on Odd Lots

An odd-lot purchase or sale may be subject to a limit order, just as a round lot is, and over the same specified time periods—G.T.C., G.T.W., etc. It may be, for example, that you want to buy 30 shares of American Tobacco at 104, when the stock is selling at 106½. The odd-lot dealer—not the specialist—enters your order in his book, to be acted upon if and when the drop occurs. To give the dealer his ¼-point fee, of course, the price will have to go to 103¾ on a round-lot transaction after the order reaches the floor. But if it does, he will sell you 30 shares at your specified price of 104.

In the same circumstances, a limit order to sell American Tobacco at 104 would be executed at the round-lot price of 104¼.

What happens when a stock rises or falls more than the ⅛ or ¼-point the dealer is entitled to? National Cash Reg­ister is at 67½, and you wish to buy at 66. The dealer will meet your order when the round-lot price hits 65¾. The stock backs down to 65, goes to 66½, 66V4, and then in a thin market it plummets to 64½. The market rules provide, in such cases, that the stock must be supplied at the limit set (66) or at one point above the market (65½), whichever is more favorable to you. Here, obviously, the skid is of greater benefit—even with a point tacked on—than your limit.

For stocks priced below 40, the same rule applies, except that the premium is ½-point instead of a full point.

On a limit order to sell at 66, a rise past the odd-lot dealer's price of 65¾ to, say, 661½ would result in a sale at the limit price (66), because this is more favorable to the customer than a point below the market, or 65½.

The stop order can be applied to an odd lot as long as recognition is given to the standard ⅛ or ¼-point differen­tial. If round lots of National Steel, which you hope to buy at 95, are selling at 97¼, a stop order pegged at 95 will get you aboard in time, should the balloon start to go up. When a round-lot trade is made at 95, your stop will be in effect, and the dealer will deliver your stock for 95¼. Should the market bounce past 95, say, to 95⅝, the price to you would be 957/8—¼-point past the price which made your stop effective.

If your stop is an order to sell National Steel at 97 to protect a profit, a round-lot sale at 97 will trigger your stop, and the dealer's price to you will be 96¾. If the market passes through 97 without stopping, your sale will be made at the next lower price, less ¼-point.

Generally speaking, stop orders on odd lots suffer the same disadvantages as those on round lots. A quick dip can sell you out just before a rise. A more severe jolt can smash past your stop and come to rest at a point where selling out leaves little or no profit.

Investors just beginning to accumulate stock in 10- or 15-share lots, particularly at lower price levels, will also find, for the most part, that the commissions on buying in and selling out are fairly burdensome, considering the total amount of money involved.

There are frequent occasions, of course, where an odd lot of a high-priced stock involves a great deal more money than a round lot of something farther down the line. The granddaddy of them all for the past year or so— Superior Oil—has been selling in the range of $1,180 to $2,165 a share! An odd lot of 50 shares at 2,165 would mean an in vestment of $108,250—considerably more than the price of 100 shares of any other stock, common or preferred, listed on the Big Board. Even 10 shares of Superior at that price would be more costly than 100 shares of all but 6 issues listed, including preferreds. The man who wished to put a stop under his 50 shares—to protect the profit that has been building since he bought five years ago at 520—could hardly be blamed. (The fluctuations are so huge, however, that the stop would probably have to be placed 200 points away from the market!)

Normally, however, these are techniques best left to the experts.

Stock Clearance and Transfer

Although the trade at the post clinches the deal, there remains at the end of the trading day a fairly staggering amount of paper work to be done to complete it. Brokers must send confirmations of all orders received to their cus­tomers, together with an accounting of all transactions they have executed.

The selling broker, furthermore, must arrange to receive the stock certificate, properly endorsed, from his customer, so that it can be transferred to the buyer. Or, he must get it out of his firm's vault if it has been held there in a "street name"—the brokerage house's rather than the customer's—to> facilitate just such transfers. The buyer's broker, if the money is not already in a brokerage account, must obtain funds from his customer to pay for the purchase.

All over town, after the 3:30 closing on a busy day, brokerage-house clerks are totting up many hundreds of buying or selling transactions involving thousands of shares of stock and money that may run into the millions.

The way in which the settlements are made, step by step, is too complicated to describe in much detail here. But through the agency of the New York Stock Exchange Clear­ing Corporation, another Exchange subsidiary, the procedure is simplified to the degree that "regular way" delivery of stocks and money owed can be accomplished in four busi­ness days.

Briefly, a brokerage house that, in the course of the day, has both bought and sold 200 shares of Inland Steel can handle these transactions within its own shop. It will debit Customer A's account with the purchase price of his stock and credit Customer B with the selling price of his stock. It can also arrange the transfer of Customer B's stock certificate to Customer A.

All transactions, of course, will not cancel out. On balance, House X may have commitments to deliver 1,500 shares of various stocks and to receive 1,200 shares of other stocks. Accordingly, it delivers the shares owed and a list of the shares it should receive to the clearinghouse. By the next day, the clearinghouse will have shuffled and sorted and packaged up the certificates the brokerage house is due to receive.

By this time, too, House Y, which sold the 200 shares of Inland, will have turned in its certificate. And Brokerage House Z, which bought 200 shares of Inland and has a certificate coming, gets it, in effect, from Y through the clearinghouse. This is far simpler than having X take one customer's certificate down the street to Z, and then call on Y to pick up a similar certificate to take back to the office for its other customer.

Meanwhile, a similar clearing procedure is being followed to settle cash acounts. For 1,500 shares of stock delivered, X is due to receive $68,500. For the 1,200 shares it receives, it owes $59,400. Again, clearance checks payments against receipts and pays out the net sums owing. In this case, X receives a clearinghouse check for $9,100 to balance its accounts.

The certificates X receives for its customers will be made out in somebody else's name. To obtain a certificate in the customer's name (or in the street name for easier handling), it sends the certificate for Customer B's 200 shares of Inland Steel to the company's transfer agent. The Exchange insists that each corporation listed appoint a transfer agent and registrar in Manhattan, so that traffic will not be delayed. Usually, large banks or trust companies serve in these ca­pacities. In a few instances, corporations are their own trans­fer agents.

The transfer agent issues a new certificate in Customer A's name, punches the proper denomination in the border if it is for less than 100 shares, countersigns it, and cancels the old certificate. The registrar—a different bank—double-checks that the new certificate is properly made out to an authorized owner, certifies it, and records the new stockholder's name in the company's registry.

The stock certificate now goes to the buyer's broker who sends it, by registered mail, to bis customer. This, of course, could be you.