As consumers in the US, we’ve been conditioned to buy things at the ask price of the sellers. Some retailers even go as far as placing No-Haggle signs to deter you from trying to get a better deal. Most of us take it at face value and unknowingly give up our right to negotiate, consequently giving up our edge in the market place. Don’t Be a sucka, always negotiate!
Case in point…We go to the grocery with our lists and recipes. All the items are priced to purchase, we grab and go to the register to buy without any second thought.
Imagine trying to negotiate the price of a bag of potatoes with the clerk in the check-out line… you’d more than likely get the blank stare like you have two heads.
Just try it on your next trip…I’m confident it will make for a great story at the next party..lol!
While the grocery may not be your most successful grounds for negotiation it doesn’t mean you should just accept what you’re given.
Let’s delve a little deeper…shall we.
A market is a place where consumers come together to buy and sell goods. The stock market is no exception. In fact, the stock market is even more ruthless full of old sharks looking for food to eat all day every day. The ones that don’t know they can negotiate their orders will be taken advantage of.
Frankly, the stock market is the perfect place for negotiation. When you’re ready to shop and purchase stocks or options you must come to the “bid and ask”. The “bid and ask” is the place where you negotiate how much you’re willing to pay or sell your stocks or option contracts.
A few terms you need to understand when trading is the bid, ask, and mark price.
The Bid Price is the buyers offer for the stock or option. This would be like you trying to get in on the action and how much you’re willing to pay to get involved.
The Ask Price is the other person on the other side of the transaction and how much they want to receive for the stock or option. This is the seller trying to mark up the product as high as possible.
The Mark price is the middle price between the ask and the bid offer. This is a good place to start negotiations. Anything below mark price will give the buyer the edge. Anything above mark will give the seller the edge.
Another term to familiarize yourself with is the Theo Price. Theo is short for theoretical. Theo gives you a general idea of the future value of the option contract, specifically.
Since Theo price can provide future insight, this can be a helpful tool in guiding you on where to place your bid and ask price when negotiating.
Once you’ve made the decision that you want to participate in a trade then you’re ready to execute an entry order.
There are generally two ways you can enter an order. You’d either use Market order or Limit order. Don’t confuse market order with mark price they are two different things entirely.
Market orders will get you filled at whatever price the market gives you. You will guarantee get your order filled but you’ll enter at a huge disadvantage. The old sharks won’t think twice about filling your market order… guppy!
Bosses don’t act out of desperation and neither should you. Remember, Market orders are for suckers!
Contrary to market orders, limit orders are negotiable and will only fill at the price that you negotiated. There is no guarantee that you’ll get filled on your order, but it’s worth trying. You never know who is at the other end and what they’re willing themselves to take. Limit orders are for bosses!
Have you ever placed a trade that didn’t get filled? Don’t panic… this happens everyday B! This is the seller rejecting your limit order. You could cancel the offer and place another order and see if the seller will take your new offer. You can literally do this all day if necessary.
Always use Limit Orders and never settle for the default order.
Above all, it’s in your best interest to flex your negotiation muscle’s often and embrace this as a lifestyle. The best thing that can happen is that you’ll get a better deal. The worst thing that can happen is that your offer get’s rejected.
Therefore don’t be a sucker always negotiate!
For deeper understanding on the “how to” of this process click the “Everything is Negotiable” video to learn more! And as always, til’ next time, happy trading Wallstreet Jackboyz and girls!