Before You Sell Your Stocks, Know These 8 Things

By: Chioma Madonna Ndukwu

Before You Sell Your Stocks, Know These 8 Things

Buying shares can be an important step towards building wealth, but knowing when and how to sell is just as important.

For some investors, selling becomes difficult when prices fall. They hold on, hoping the market will recover. Others sell in a hurry when prices rise, only to wonder later if they exited too soon.

The decision does not have to be driven by fear or excitement. Investors have several recognised ways to sell their holdings, depending on their objectives, the market and how quickly they want the transaction completed.

Here are eight things investors should know before selling their stocks.

1. Sell through an online brokerage account

For most retail investors, an online brokerage account is the easiest route to the stock market.

After signing into the trading platform, the investor selects the company, enters the number of shares to be sold and places a sell order.

The broker then sends the instruction for execution. The process may appear simple, but investors should understand the type of order they are placing before confirming the transaction.

2. Use a market order when speed matters

A market order is generally used when an investor wants the shares sold as quickly as possible rather than waiting for a particular price.

The broker seeks the best available price in the market when the order reaches the trading venue. However, the final price may differ from the figure displayed when the order was placed, especially during sharp price movements.

In simple terms, a market order gives priority to execution, not a guaranteed selling price.

3. Set a limit order for greater price control

Investors who have a minimum price in mind can use a limit order.

For instance, if a stock is trading at $50 and an investor wants at least $55, a sell limit order can be placed at $55.

The shares will only be sold when the market reaches the specified price or a better one.

The downside is straightforward: if the stock never reaches the target, the shares may remain unsold.

4. Consider a stop order when a stock starts falling

A stop order can help investors respond automatically when a stock drops to a particular level.

The investor sets a stop price below the current market value. Once the stock reaches that price, the stop order becomes a market order.

This can reduce hesitation during a sharp decline, but investors should remember that the eventual selling price is not guaranteed.

5. Sell through a transfer agent

Some investors hold shares directly rather than through a conventional brokerage account.

Depending on the company and arrangement, such investors may be able to sell through a transfer agent handling the company’s shareholder records.

The investor submits the required instruction, and the sale is arranged through the appropriate market channel.

This option is more relevant to people who already hold directly registered shares or participate in certain direct stock purchase plans.

6. Check how easily the stock can be traded

Before selling a large holding, investors should consider the stock’s liquidity.

A heavily traded stock generally has more buyers and sellers, making it easier to enter or leave a position.

A thinly traded stock can be different. An investor may have to wait longer for a buyer or accept a less attractive price.

Having shares to sell does not always mean there will be a buyer ready at the price you want.

7. Find out the charges and tax implications

The selling price is not necessarily the final amount that reaches the investor.

Depending on the country, broker and transaction, investors may encounter commissions, trading charges, taxes or other deductions.

A sale that appears profitable on the screen may produce a smaller return after these costs are taken into account.

Investors should therefore check the applicable charges and tax rules before completing a transaction, particularly when selling shares that have appreciated considerably.

8. Confirm the transaction and settlement

Placing a sell order does not automatically mean the entire transaction has been completed.

An order can remain pending or be only partly executed. Investors should check their account and trade confirmation to see how many shares were actually sold and the price obtained.

Settlement is another matter. The date a trade is executed is not always the date the proceeds become available for withdrawal.

For example, most securities transactions in the United States now operate on a T+1 settlement cycle, meaning settlement generally occurs one business day after the trade date. Other markets may follow different arrangements.

Selling stocks, therefore, involves more than choosing a price and pressing the sell button.

The right approach depends on what the investor is trying to achieve. Someone who values speed may favour a market order, while an investor focused on a particular price may choose a limit order.

Whatever method is selected, understanding the order, checking the costs and confirming the transaction can prevent avoidable surprises.

In the stock market, knowing how to enter is only half the journey. Knowing how to leave can be just as important.