Woodstock Financial Group is here to help you in your effort to reach your investment goals. We encourage you to speak with your advisor and share your goals with him or her. Your advisor can then assist you in developing an investment strategy based upon your needs and current situation to help you to reach your goals.

The information on this page is considered fundamental informational material. You can always ask you registered representative to explain each of these items or terms, or any other items of interest in the investment world, in greater detail to you.

PLACING THE RIGHT TYPE OF ORDER

When you buy and sell securities, the type of order you choose can determine whether or not your trade is executed, when it is executed and at what price. If you're trading online, it's critical that you understand the effects and implications of the orders you place.

MARKET ORDERS

A market order is simply an order to buy or sell a stock at the best price available at the time the order is executed in the market. During market hours, these orders will usually execute at or close to the current quoted price. You should never assume that a market order will be filled at the exact price you are quoted.

Be particularly cautious if you are entering an order for a stock trading in fast market conditions (when the market in general or certain stocks experience high levels of activity and large price fluctuations) or placing a large order. If there are fewer shares available at a particular quote than you want to buy or sell, you may get a partial fill order at the quoted price and a partial fill at the next available price. In a fast market, your order may fill at a price that is significantly different from the quoted price.

The high volume of orders that are rapidly submitted during a fast market may create a backlog that can cause significant delays, sometimes exceeding 30 minutes. As a result, when you place a market order under these conditions, the quote received is more an indication of what has already happened in the market than an indication of the trade execution price you will receive. Market orders are executed on a first-come, first-serve basis. In the short time between when an order is placed and when it is executed, other trade orders already in line can significantly affect the stock price. In addition, there may be significant delays (and thus different execution prices) between the initial purchase execution you receive and the subsequent fill of the balance of the order.

If you place market orders online, make sure the quotes you are looking at are the most current available and the stock is not trading in a fast market. While some sites offer real-time quotes, some may post figures that are delayed by 20 minutes.

LIMIT ORDERS

A limit order is an order to buy or sell a stock at a specific price or better. This allows you to place a restriction on the maximum price you are willing to pay (in the case of a buy order) or the minimum price you are willing to receive (in the case of a sell order). If the order is executed, you will receive either the limit price or a better price (i.e., a lower price for a buy, a higher price for a sell). While a limit order allows you to set price limits, it does not assure that the order will be executed. Even when the market moves to or through the limit price, execution is not assured because of the possible presence of other limit orders.

You may want to use a limit order if you believe a better price for the stock may become available.

When you decide to place a trade order in a fast market, entering a limit order (instead of a market order) allows you to establish a buy price at the maximum you are willing to pay, or a sale price at the lowest you are willing to receive. In a fast market, there's no assurance that a limit order will be executed. However, placing a limit order assures that you will not pay a higher purchase price or receive a lower sale price than you specify.

STOP ORDERS

For a listed stock, a stop order (also known as a stop-loss order) is an order to buy or sell a security at the market price once the security has traded at or better than the price you specify (called the stop price). For an over-the-counter (OTC) security, this happens when the inside bid or offer is equal to or better than your stop price.

Sell stops are entered below the current market price. If the price - or the bid for an OTC stock - moves to or below the stop price, the order becomes a market order and is executed at the current market price. A stop order to sell is usually designed to protect a profit or limit the loss on a security you've already purchased at a higher price. If, for example, XYZ Corp. is currently trading at $100, you might enter a stop order at 90. If the price falls to 90 or below, your order triggers a market order to sell, potentially helping to protect you from further declines.

Stop orders to buy are sometimes used as a defensive order for an investor who has a short position in a stock and wishes to close it before the price changes much further. Buy stops are entered above the current ask price. If the price moves to or above the stop price, the order becomes a market order and is executed at the current market price.

If you place a stop order in a fast market, it could potentially be executed far above or below your expectation because it has become a market order. For instance, a company could issue disappointing earnings news overnight, causing its stock to open the next trading session 20 points below your stop price. What has now become a market order would be executed at that price and your potential profit would be lost - with the added possibility that you could incur an even more significant loss.

STOP LIMIT ORDERS

A stop limit order is an order to buy or sell a security at a specific limit price once the security has traded at or through a specified stop price. It instructs a broker to buy or sell at a specific price or better, but only after a given stop price has been reached or passed. As its name implies, it is a combination of a stop order and a limit order.

For example, suppose you place an order to "buy 100 ABC 55 stop 56 limit." If the market price moves through the trigger price of $55, a limit order will automatically be placed with the instruction to buy at a maximum of $56 per share.

Day orders and good-till-canceled orders

In addition to the different types of orders discussed above, you can specify how long you want your order to remain in effect.

• A day order to buy or sell securities expires unless executed or canceled the day it is placed. Orders are generally considered day orders unless otherwise specified.
• A good-till-canceled (GTC) order remains in effect until it is executed or until you cancel it. Most GTC order will expire after 60 days depending on the rules of the brokerage firm.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. Data contained here is obtained from what are considered reliable sources; however, its accuracy, completeness or reliability cannot be guaranteed.

Stocks

Stocks are equity investments. If you buy stock in a corporation, you have an ownership share in that corporation and are described as a stockholder or shareholder. You will buy stock because either you expect it to increase in value, or because you expect the corporation to pay dividends to you. In some cases, you will buy stock for both of these reasons. In fact, many stocks can provide both growth and income. There are basically two classes of stock that you can invest in: common and preferred.

Common Stock

Most stock in the U.S. is common stock. If you buy common stock, there are no guarantees that you will make money. And, you take the risk that the stock won't increase in value or pay dividends at all. In exchange for the risk you take, however, you stand to make money if the company you invest in grows and does well. Over time, stocks in general, though not each individual stock, tend to increase in value.

Preferred Stock

Preferred stocks differ from common stocks. While preferred stocks are equity ownership in the corporation, they have different characteristics. Preferred stocks generally pay much higher dividends than common stocks and the dividends are senior to common dividends. This means that if a dividend is paid, the Preferred Stockholder will get paid before the Common Stockholder. The amount of the dividend is generally fixed and will not increase over time.

Common Stocks should be a part of every investor's core long term growth portfolio. Your allocation (percentage of your portfolio) in common stocks will depend upon your risk tolerance, investment goals, and time horizon. Common stocks generally give you the opportunity to earn a higher return than preferred stocks. But, with that greater potential, there are greater risks involved in owning common stocks.

Preferred stocks will provide regular dividend payments to the investor and provide a level of stability to the investor's portfolio. Preferred stocks will fluctuate in price depending on market forces. But, the price swings in preferred stocks are usually much smaller than the price swings in common stocks. And, by diversifying the equity portion of your core growth portfolio among a few quality preferred stocks you will find that your overall portfolio volatility will be reduced and you will earn steady dividend income.

There is no guarantee that the preferred stocks will continue to pay dividends. But, if you invest in high quality companies, you will have a high probability that they will continue to pay their dividends.

Please discuss your goals with your registered representative and ask him or her about how incorporating common and preferred stocks into your portfolio can help you achieve your investment goals. There is no guarantee that you will make any money by owning stocks. And, you run the risk of losing a portion or all of your original investment. But, we believe that owning a diversified portfolio of stocks designed for long term growth will give you the chance of reaching your investment goals, as long as they are realistic.

What are bonds?

A bond is a debt security, similar to an I.O.U. When you purchase a bond, you are essentially lending money to a corporation, municipality, government agency, or other entity known as the issuer. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) at the end of the term of the bond (maturity). Among the types of bonds you can choose from are: corporate, municipal bonds, mortgage and asset-backed securities, and U.S. Government bonds.

Bonds are typically not found in a portfolio designed for short term trading. However, bonds should be a part of every investor's core long term growth portfolio. Bonds provide regular interest payments to the investor and provide a level of stability to the investor's portfolio. And, by diversifying the fixed income portion of your core growth portfolio among high yield corporate bonds, investment grade corporate bonds, mortgage backed bonds, and U.S. Government bonds you will find that your overall portfolio volatility will be reduced and your income stream will be steady.

Please discuss your goals with your registered representative and ask him or her about how incorporating bonds (fixed income investments) into your portfolio will help you achieve your investment goals.

Margin: Borrowing Money To Pay for Stocks

"Margin" is borrowing money from your broker to buy a stock and using your investment as collateral. Investors generally use margin to increase their purchasing power so that they can own more stock without fully paying for it. But margin exposes investors to the potential for higher losses. Here's what you need to know about margin.

Understand How Margin Works

Let's say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you'll earn a 50 percent return on your investment. But if you bought the stock on margin - paying $25 in cash and borrowing $25 from your broker - you'll earn a 100 percent return on the money you invested. Of course, you'll still owe your firm $25 plus interest.

The downside to using margin is that if the stock price decreases, substantial losses can mount quickly. For example, let's say the stock you bought for $50 falls to $25. If you fully paid for the stock, you'll lose 50 percent of your money. But if you bought on margin, you'll lose 100 percent, and you still must come up with the interest you owe on the loan.

In volatile markets, investors who put up an initial margin payment for a stock may, from time to time, be required to provide additional cash if the price of the stock falls. Some investors have been shocked to find out that the brokerage firm has the right to sell their securities that were bought on margin - without any notification and potentially at a substantial loss to the investor. If your broker sells your stock after the price has plummeted, then you've lost out on the chance to recoup your losses if the market bounces back.

Recognize the Risks

Margin accounts can be very risky and they are not suitable for everyone. Before opening a margin account, you should fully understand that:

• You can lose more money than you have invested; • You may have to deposit additional cash or securities in your account on short notice to cover market losses; • You may be forced to sell some or all of your securities when falling stock prices reduce the value of your securities; and • Your brokerage firm may sell some or all of your securities without consulting you to pay off the loan it made to you.

You can protect yourself by knowing how a margin account works and what happens if the price of the stock purchased on margin declines. Know that your firm charges you interest for borrowing money and how that will affect the total return on your investments. Be sure to ask your broker whether it makes sense for you to trade on margin in light of your financial resources, investment objectives, and tolerance for risk.

Read Your Margin Agreement

To open a margin account, you must sign a margin agreement. The agreement may be part of your account opening agreement or may be a separate agreement. The margin agreement states that you must abide by the rules of the Federal Reserve Board, the New York Stock Exchange, the National Association of Securities Dealers, Inc., and the firm where you have set up your margin account. Be sure to carefully review the agreement before you sign it.

As with most loans, the margin agreement explains the terms and conditions of the margin account. The agreement describes how the interest on the loan is calculated, how you are responsible for repaying the loan, and how the securities you purchase serve as collateral for the loan. Carefully review the agreement to determine what notice, if any, your firm must give you before selling your securities to collect the money you have borrowed.

Know the Margin Rules

The Federal Reserve Board and many self-regulatory organizations (SROs), such as the NYSE and NASD, have rules that govern margin trading. Brokerage firms can establish their own requirements as long as they are at least as restrictive as the Federal Reserve Board and SRO rules. Here are some of the key rules you should know:

• Before You Trade - Minimum Margin

Before trading on margin, the NYSE and NASD, for example, require you to deposit with your brokerage firm a minimum of $2,000 or 100 percent of the purchase price, whichever is less. This is known as the "minimum margin." Some firms may require you to deposit more than $2,000.

• Amount You Can Borrow - Initial Margin According to Regulation T of the Federal Reserve Board, you may borrow up to 50 percent of the purchase price of securities that can be purchased on margin. This is known as the "initial margin." Some firms require you to deposit more than 50 percent of the purchase price. Also be aware that not all securities can be purchased on margin.

• Amount You Need After You Trade - Maintenance Margin

After you buy stock on margin, the NYSE and NASD require you to keep a minimum amount of equity in your margin account. The equity in your account is the value of your securities less how much you owe to your brokerage firm. The rules require you to have at least 25 percent of the total market value of the securities in your margin account at all times. The 25 percent is called the "maintenance requirement." In fact, many brokerage firms have higher maintenance requirements, typically between 30 to 40 percent, and sometimes higher depending on the type of stock purchased.

Here's an example of how maintenance requirements work. Let's say you purchase $16,000 worth of securities by borrowing $8,000 from your firm and paying $8,000 in cash or securities. If the market value of the securities drops to $12,000, the equity in your account will fall to $4,000 ($12,000 - $8,000 = $4,000). If your firm has a 25 percent maintenance requirement, you must have $3,000 in equity in your account (25 percent of $12,000 = $3,000). In this case, you do have enough equity because the $4,000 in equity in your account is greater than the $3,000 maintenance requirement.

But if your firm has a maintenance requirement of 40 percent, you would not have enough equity. The firm would require you to have $4,800 in equity (40 percent of $12,000 = $4,800). Your $4,000 in equity is less than the firm's $4,800 maintenance requirement. As a result, the firm may issue you a "margin call," since the equity in your account has fallen $800 below the firm's maintenance requirement.

Understand Margin Calls - You Can Lose Your Money Fast and With No Notice

If your account falls below the firm's maintenance requirement, your firm generally will make a margin call to ask you to deposit more cash or securities into your account. If you are unable to meet the margin call, your firm will sell your securities to increase the equity in your account up to or above the firm's maintenance requirement.

Always remember that your broker may not be required to make a margin call or otherwise tell you that your account has fallen below the firm's maintenance requirement. Your broker may be able to sell your securities at any time without consulting you first. Under most margin agreements, even if your firm offers to give you time to increase the equity in your account, it can sell your securities without waiting for you to meet the margin call.

Ask Yourself These Key Questions

• Do you know that margin accounts involve a great deal more risk than cash accounts where you fully pay for the securities you purchase? Are you aware you may lose more than the amount of money you initially invested when buying on margin? Can you afford to lose more money than the amount you have invested?

• Did you take the time to read the margin agreement? Did you ask your broker questions about how a margin account works and whether it's appropriate for you to trade on margin? Did your broker explain the terms and conditions of the margin agreement?

• Are you aware of the costs you will be charged on money you borrow from your firm and how these costs affect your overall return?

• Are you aware that your brokerage firm can sell your securities without notice to you when you don't have sufficient equity in your margin account?