3 Common Trading Mistakes and How To Avoid Them

Investors spend a lot of time thinking ahead – whether that's researching market or company trends, working out how long to invest or mapping out strategies to achieve goals. After all, we've all heard the age-old investing wisdom a hundred times: Successful investing can require a long-term outlook.

But while investing success can require keeping an eye on the long game, in-the-moment investing decisions are also key — like properly filling out the trade order that gets it all started. According to Jeff Varey, VP Equity Agency Trading at RBC Wealth Management, the humble placing-an-order step is where many investors can make an error, which in turn can cost them money.

While financial institutions already do many things to help you make the best of the orders you place, there are a things investors can do themselves to kick things off on the right foot. Here are three easy-to-make order-entry mistakes you can avoid with a little planning.

Selecting the wrong symbol

One of the most common errors investors can make is the old-fashioned “fat finger" blunder – like selecting the wrong stock symbol or mistyping an order amount on the order sheet. When placing a trade, know that:

• Some stock symbols can appear very similar to others, especially if they share letters
• A symbol that seems to logically refer to one company (say, “ABC" for Alright Bearings and Chemicals) could easily represent a different stock
• Some companies offer several classes of a stock (e.g. Class A, Class B, etc.), often with different voting rights and price points
• A stock symbol listed on a Canadian exchange could represent an entirely different company on a U.S. exchange
• Some companies trade on more than one exchange, so you might see the same company with different prices because they're trading on different exchanges

So before hitting continue, take a moment to double check the company's name, the investment type and exchange.

Placing the wrong type of order

The Place an Order screen gives several trade options when buying or selling: Market, Limit and Stop Limit. The most hands-off type, market order, can carry certain risks if not properly understood, says Varey.

That's partly because a market order immediately accepts the best available price provided there's a willing buyer or seller. This can work to one's benefit, as it often means your order will be filled quickly during trading hours. However, the price at the time of the trade may vary from the price you end up with. For actively traded stocks with a narrow spread, the spread is usually minimal. Price changes for volatile or thinly traded equities, on the other hand, may catch some investors unaware.

Limit orders allow you to set a maximum purchase price for a buy order, or a minimum sale price for a sell order.

Being unprepared for volatility

Though one can never truly "time the market," investors may find that certain times of day can present different risks. For example, Varey says, market liquidity and spreads can be unpredictable around the open, and large volumes of buying and selling may cause a stock's price to increase or decrease suddenly. This period of volatility may surprise an investor placing an order expecting a certain price target (see above).

Placing a market order overnight or otherwise outside regular trading hours can also carry risks. A lot can happen outside of trading hours, and the opening price may not reflect the price the equity closed at the previous day. Some investors keep an eye on pre-market and after-hours quotes to help them get a sense of which way markets or an individual stock's price could go at the opening bell.