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An order can be for intraday or carry-forward trade. In intraday, the positions are squared off within the same trading session and in carry-forward trade, either delivery is taken or the position is carried forward to a later date (Futures and Options).
There are different ways in which an order can be placed:
Market Order is the simplest type of order. A market order is an order to buy or sell a security at the best possible price at the current market.Which means once the order to buy or sell is entered, the system will execute the orders with best prices available in the market.Market order gets executed almost immediately.
In market order, the trader or investor do not have control on the price but there is very high probability that the order will get executed.
A buy market order for 5 shares of company A will purchase 5 shares at the current lowest offer price in the order book.
A sell market order for 5 shares of company A will sell 5 shares at the current highest bid price in the order book.
Eg: Considering this order book, if weplace a market order to buy 5000 shares of this co. -it willmatch this order with lowest offer price available. First 4500 shares will be bought at Rs. 998. The next 500 shares will be bought at Rs. 999
There can be slight difference between the price we are seeing on our screen and the price at which the order gets executed because the price we see on the watchlist is the last price at which a transaction took place and the last transaction may not be my transaction. There may be difference due to slippage- which means getting a different price due to high volatility in stock price.
Limit order is an order, where the trader can set a price to buy or sell a security. Unlike market order, where the trader doesn’t have any control over price, in limit order the trader will set the price.
If a trader places a limit order to buy shares at Rs. 100, the shares will be bought at Rs. 100 or lower. If the trader places a limit order to sell shares at Rs. 100, the shares will be sold at Rs. 100 or higher.
A limit order can be used during high volatility to control the price at which we buy or sell a security. Limit order can be used if someone is not actively following the price movement of a stock and want to buy or sell at a pre-determined price. Limit order can also be left open with an expiration date.
- A limit buy order will execute at order price or lower than that price.
- A limit sell order will execute at order price or higher than that price.
Stop-Loss order is an order where a trader can limit his or her losses by exiting a trade if a specific price is reached. By placing a stop-loss order, one can save himself from incurring high losses if the price goes against them.
When a trader places a buyorder, he is expecting the price to rise,so that he can earn a profit. But it may so happen, instead of the price rising, the pricefalls. To avoid high losses when prices falls, he can place a stop-loss order at a price below the buy price.
A trader places a buy order:
- Share price = Rs. 500
- Stop loss at Rs. 498
He expects the share price to go higher, to earn profit. In case the price falls below Rs. 500, say it falls to Rs. 495.The trader will book a loss of Rs. 2 per share (500 – 498) and exit the trade.
If he had not put a stop-loss, the loss would have been Rs (500-495) = Rs 5 per share, which is greater than the above scenario.
Similarly, when a trader places a sell order, he expects the price fall, so that he can earn a profit. But it may so happen, instead of the price going down, the price goes up. To avoid high losses when prices go down, he can put a stop-loss at a price higher than the sell price.
Eg: If a trader has placed a buy order at Rs. 500, he can place a stop loss price at Rs. 495. In case the price goes down, he will book a loss of Rs. 5 per share and exit the trade.
Stop-loss market order
Stop-loss market order is an order, where the trader sets a trigger price to exit the trade if the price goes against his expectation.
Suppose there is a sell position at Rs. 1000 and trigger price for stop-loss is placed at Rs. 1002. If the price hits Rs.1002, it will place a buy order to exit the trade. The buy order will get executed at market price.
It is used by traders to make certain that the exit trades get executed if the price goes against them.
In stop-loss market order, trades are placed with a trigger price. If a buy trade is placed and the price falls and hits the trigger price, it will exit the trade at any price available in the current market.
In stop-loss market order, the losses can be more if there is high volatility in price.
Stop-loss limit order
Stop-loss limit order is almost similar to stop-loss market order but it does not get executed at market price.It will get executed at specified limit price set by the trader. In Stop-loss limit order the trader will have to set a trigger price and a limit price.
Eg: We place a stop-loss limit sellorder when we already have a long position.
Long position at price – Rs. 1000
Stop-loss limit price- Rs. 990
Trigger price – Rs. 991
If the price falls to Rs. 991, it will trigger a sell order at Rs. 990. And if the price gets to Rs. 990, it will get executed.
After Market Order (AMO)
After market orders are orders that are placed beyond market hours. The normal market hours are between 9.15 am to 3.30 pm.
But, the entire period outside market hours cannot be used to place after market orders. Different brokers specify a time interval, within which we can place the AMOs. There are also conditions on the price of security you can set in limit orders, normally it is in range of 5-10% of adjusted closing price but the exact range varies among different brokers. AMOs can also be set at market price.
Bracket Order (BO)
Bracket order is an order with 3 orders bundled into one. You can enter a new position with a target and a stop-loss. All bracket orders are limit orders. The stop-loss and target will have to be in absolute points(i.e. 1,2,5,10, etc).
Eg: If share of ABC is trading at Rs. 1000. We can put a bracket order to buy it at Rs. 1000 with a target of 10 points and stop loss of 5 points.
For every bracket order that gets executed, we have 2 corresponding orders that gets placed automatically. One is target order and another is stop-loss order.
Cover order is an order by which we can enter a position along with a stop-loss in a same order form.
Based on Time Duration.
Also based on time duration, there can be:
- Good For Day Order – order will stay valid till the end of current trading session.
- Good Till Day Order – by using we can keep our order active for few days.
Eg- If we place an order on 1st March and it does not get executed, we can carry forward to say till 4th march. If it doesn’t get executed even on 4th march, the order will be cancelled.
- Immediate or Cancel Order- The order once placed will be executed immediately, if it is not executed it will cancel itself. In this case, it may so happen that the order will be partially executed.
Eg- If we place an order to buy 1000 shares and only 600 shares gets immediately purchased, the rest order of 400 will gets cancelled.
- Types of Trading Order
- Market Order
- Limit Order
- Stop-Loss Order
- Stop-loss limit order
- After Market Order (AMO)
- Cover Order