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There is a wealth of information available for purchasing stocks, but investors typically give selling them much less consideration.
That’s incorrect because the money is earned during the sale. Making the correct decisions can be crucial to realizing your gains or, in other situations, minimizing your losses.
Selling stocks is an essential part of any investment strategy. Whether you’re aiming to lock in profits, rebalance your portfolio, or simply access your invested capital, knowing how to cash out your stocks effectively is crucial. This guide provides a step-by-step approach to selling your stocks, covering everything from choosing the right order type to maximizing your returns.
Understanding the Selling Process
Before diving into the specifics. let’s first clarify the basic steps involved in selling stocks:
- Choose a Broker: If you haven’t already, you’ll need to open an account with a reputable online broker. This platform will serve as your gateway to the stock market, allowing you to buy and sell stocks.
- Select the Stocks to Sell: Decide which stocks you want to sell. This decision should be based on your investment strategy, risk tolerance, and current market conditions.
- Choose an Order Type: Order types determine how your sell order will be executed. Common options include market orders, limit orders, stop orders, and stop-limit orders.
- Submit the Order: Once you’ve chosen an order type, submit your sell order through your broker’s platform.
- Wait for Execution: Your order will be placed on the stock exchange and will be executed when a buyer is found.
- Receive the Proceeds: Once your order is executed, the proceeds from the sale will be deposited into your brokerage account.
Choosing the Right Order Type
The order type you choose plays a crucial role in determining the price at which your stocks will be sold and the overall success of your transaction. Here’s a breakdown of the most common order types:
- Market Order: A market order instructs your broker to sell your stocks at the best available price in the current market. This is the simplest and fastest order type, but it offers no control over the selling price.
- Limit Order: A limit order allows you to specify the minimum price at which you’re willing to sell your stocks. Your order will only be executed if the market price reaches or exceeds your limit price. This order type is useful for ensuring you receive a certain minimum amount for your stocks.
- Stop Order: A stop order is similar to a market order, but it only becomes active if the stock price falls to or below a certain level (the “stop price”). This order type is helpful for limiting potential losses if the stock price takes a sudden downturn.
- Stop-Limit Order: A stop-limit order combines the features of a stop order and a limit order. It becomes active when the stock price falls to the stop price, but it will only be executed if the market price reaches or exceeds your specified limit price. This order type provides a safety net while ensuring you receive a minimum amount for your stocks.
Maximizing Your Returns
While there’s no guaranteed way to maximize your returns when selling stocks, there are several strategies you can employ to increase your chances of success:
- Set Realistic Expectations: The stock market is inherently volatile, so it’s essential to set realistic expectations for your returns. Don’t expect to get rich quick, and be prepared for the possibility of losses.
- Do Your Research: Before selling any stock, take the time to research the company and its current market position. This will help you make informed decisions about when to sell and at what price.
- Consider Tax Implications: Selling stocks can trigger capital gains taxes, so it’s important to factor these into your calculations. Consider working with a financial advisor to optimize your tax strategy.
- Be Patient: Don’t feel pressured to sell your stocks immediately, especially if the market is experiencing a downturn. Sometimes, it’s best to wait for the market to recover before selling.
- Diversify Your Portfolio: Spreading your investments across different asset classes and industries can help mitigate risk and improve your overall returns.
Additional Resources
For further guidance on selling stocks, consider these valuable resources:
- Cash App Help Center: https://cash.app/help/us/en-us/5010-selling-stock
- NerdWallet Guide to Selling Stocks: https://www.nerdwallet.com/article/investing/selling-a-stock
- Investopedia Guide to Selling Stocks: https://www.investopedia.com/terms/s/sellorder.asp
Frequently Asked Questions
How long does it take to sell stocks?
The time it takes to sell stocks can vary depending on the order type you choose and the current market conditions. Market orders typically execute within seconds, while limit orders and stop orders may take longer to execute
What are the fees associated with selling stocks?
Most brokers charge a commission fee for each stock sale. The commission fee varies depending on the broker and the size of the transaction. Some brokers also charge additional fees, such as regulatory fees and exchange fees.
Can I sell fractional shares of stocks?
Yes, some brokers allow you to sell fractional shares of stocks. This means you can sell a portion of a share, rather than having to sell the entire share.
What happens if I sell stocks at a loss?
If you sell stocks at a loss, you may be able to claim a capital loss on your tax return. This can offset capital gains and reduce your overall tax liability.
Should I sell my stocks during a market downturn?
This is a complex decision that depends on your individual circumstances and investment goals. It’s important to carefully consider all factors before making a decision.
How can I avoid making mistakes when selling stocks?
The best way to avoid mistakes is to do your research, understand the different order types, and consider working with a financial advisor.
Selling stocks is an essential part of any investment strategy. By following the steps outlined in this guide and considering the additional resources provided, you can increase your chances of success and maximize your returns. Remember, patience, research, and a well-diversified portfolio are key to achieving your investment goals.
Decide on an order type
The options for order types are the same if you are familiar with purchasing and selling stock. But the objective is different: you use order types to control the price of buying stock. Your primary goal in the sale is to minimize losses and optimize profits.
|
Order type |
What it is |
Use it if… |
|---|---|---|
|
Market order |
A request to buy or sell a stock ASAP at the best available price. |
You want to unload the stock at any price. |
|
Limit order |
A request to buy or sell a stock only at a specific price or better. |
Youre fine with keeping the stock if you cant sell at or above the price you want. |
|
Stop (or stop-loss) order |
A market order that is executed only if the stock reaches the price youve set. |
You want to sell if a stock drops to or below a certain price. |
|
Stop-limit order |
A combination of a stop order and a limit order: A limit order is executed if your stock drops to the stop price, but only if you can sell at or above your limit price. |
You want to sell if a stock drops to a certain price, but only if you can sell for a minimum amount. |
Let’s go through some examples. Let’s say you own a stock that is currently trading for $40.
The order will execute at the going rate in a matter of seconds. In the time it takes to place and complete the order, stock prices may change, so you might sell for $40 or just a little bit less or more.
The risk is that there are no restrictions and your stock could sell at any price.
The order will only be executed if the stock is trading at or above the limit price that you specify. Your order will only be executed if the stock trades at or above $41 if your limit order is for $41.
The risk is that if the stock never reaches your limit price, you might decide not to sell.
Your order will only be executed if your stock starts trading at or below the stop price that you have set. Should the stock price drop to $38 or below, your order will execute as a market order if your stop price is $38.
The risk is that there is no floor, so you could sell for less than your stop price. Additionally, a brief price reduction could result in a sale when you don’t want it to.
You set both a stop price and a limit price. If the stock’s bid price falls to $39 and your stop price is $39 and your limit price is $37, your order will execute as a limit order at or above $37.
The risk is that even though you’ve set a floor, you might decide not to sell at all if the stock falls below it too soon, which can occur in a volatile market.
» Go deeper: Discover the insider tip for profitable stock trading.
3 steps to selling stocks
When you sell will rely on your risk tolerance, investing timeframe, and investing strategy.
Sometimes though, loss aversion and fear get in the way. There are good reasons and bad reasons to sell stocks. Check your emotions when youre ready to pull the trigger. Advertisement.
Charles Schwab |
Interactive Brokers IBKR Lite |
J.P. Morgan Self-Directed Investing |
|---|---|---|
| NerdWallet rating NerdWallets ratings are determined by our editorial team. The scoring formula for online brokers and robo-advisors takes into account over 15 factors, including account fees and minimums, investment choices, customer support and mobile app capabilities.
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NerdWallet rating NerdWallets ratings are determined by our editorial team. The scoring formula for online brokers and robo-advisors takes into account over 15 factors, including account fees and minimums, investment choices, customer support and mobile app capabilities.
5.0 /5 |
NerdWallet rating NerdWallets ratings are determined by our editorial team. The scoring formula for online brokers and robo-advisors takes into account over 15 factors, including account fees and minimums, investment choices, customer support and mobile app capabilities.
4.1 /5 |
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Continued underwhelming performance in comparison to the competition, careless leadership, and management choices you disagree with could all be considered valid reasons. Perhaps you’ve determined that your money would perform better somewhere else, or you’re harvesting losses to balance gains that will result in income tax obligations.
The bad reasons are usually a hasty response to sporadic company news or brief fluctuations in the stock market. When things go rough, giving up only makes your losses more permanent, which is the last thing you want. (You know the saying: Buy low, sell high. Consider your initial motivation for purchasing the stock before deciding to sell. Examine your logic to make sure you’re not caving in to an emotional reaction you might come to regret. Did you think about what information or circumstances would lead you to sell it?
» Prone to emotional investing? Check out robo-advisors