There are many types of orders in stock market, as a beginner it becomes very confusing which one to use when. Hence, in this post i have tried to explain various types of orders in stock market with examples step by step.
Before opening a trading or demat account with any stock broker you should be aware of what kind of orders they provide. Please understand its about your hard earned money, i have seen many beginners opening an account with stock brokers just because they give high margins.
Its my humble request don’t always look for margins, please check and judge, what all other important things they provide like types of orders they have with them, technical analysis tools and resources, fundamental analysis tools, advanced trading platforms, brokerages other charges etc. If you just go for one services you will regret later for sure.
Having said that, let us understand different orders now and benefit with examples step by step. Just to let you know, the post will be little long as i have tried to cover each and every types of orders in stock market, you can move to whichever part you want to read from table of contents below.
One more thing, to make your understand different orders type i have used Types of orders Zerodha offers, in this post.
Definition Of Orders
In layman terms placing order in stock market simply means giving a command on how much quantity, at what price to buy, at which price to sell, which stock you are buying, it is like filling a form.
You need to give details before your trades executed on the exchange, it let exchange know what exactly you were looking for.
You place order either on the online platform provided to you by broker or through calling your broker.
Placing orders by yourself help in saving much of time, instead of calling your broker to get connected and than letting them know. However, always check twice what you have filled as once you place the order and it gets executed there no going back.
This is very important to know as you will use it every time you want to trade in share market. Depending upon your broker the name might change for different orders but the purpose remains same.
Types Of Orders In Stock Market
Below Are 10 Best Order Types You Should Know In 2020:
- Market Order
- Limit Order
- Stop-Loss Order
- Stop-Loss Limit Order
- Stop-Loss Market Order
- Cover Order
- Bracket Order
- Basket Order
- Good Till Triggered Order(GTT)
- After Market Order(AMO)
Let us now understand them one by one with examples and trust me they are very easy to apply in live market.
What is Market order?
A market order is an order to buy or sell a stock at the current price the stock is trading in market. So when you place such order whatever price the stock is trading at, your order will get executed at that rate.
In the image below AXIS BANK is currently trading at ₹394.55 So, suppose you placed market order, It may happen your market order gets executed at (394, 394.20, 394.80).
Because it takes few seconds for your order to sent to exchange and it might happen that the stock price have fallen or rose to few points.
This happens because prices fluctuate ever microsecond. The latest-traded price also know as LTP in the market may have changed by the time you place (bid) your order.
Generally, this type of order will be executed immediately. However, the price at which a market order will be executed is not guaranteed.
What is Limit order?
On contrary, a limit order is an order that places a limit on the price you are willing to pay to buy or sell a stock. Thus, a limit order guarantees a price, but whether the trade will get executed remains uncertain. As you can see in the image below you now have the option to put the price in a box, you can set at what price you want to buy the stock.
This is because the stock may not reach the price at which the order is placed during the trading day. So suppose you placed a limit order to buy a stock when its trading at 100, you put a price to buy it at 105, however the stock did not reach to that price, so exchange did accepted your trade but the order remain un-executed as the price of the stock did not came up.
What Is Stop Loss order?
From the name itself, it tells you to stop your losses. So when you place order you cannot be 100% sure the price of the stock will move in your favor, it may move in opposite direction significantly. So to avoid your losses you can place a stop-loss at a particular price.
As you can see in the image below, it now have another box to put the stop-loss. So, if in case the price does not move in your favor and fall below than what you have expected, you stop-loss order will get executed.
Let say you bought the stock at Rs.50, it fall to Rs.40, if you have placed a stop loss at 45 than the maximum losses would have been restricted to Rs.5. That is why it is always advisable to put the stop-losses, whenever you are trading, as in any given situation you cannot be 100% right.
What Is Stop-Loss Limit Order?
In stop-loss limit order you an put the price of the stock as well as the stop-loss value. There is nothing fancy here, just like normal limit order we discussed above.
What Is Stop-Loss Market Order?
In Stop-Loss Market Order you do not have the option to select at what price(Buy,sell) you want your order to get executed. It is similar to market order with just a stop-loss to prevent your losses.
What is Cover order (CO)?
Cover order is a combination of this three orders we have learnt above. By placing CO order you can use all three order types in a single window. What I mean to say, you can buy (or sell) shares with keeping it as market price or limit price and can also put a stop-loss.
Let us take an example to understand it better:
Suppose you want to buy a share however you want to buy it a limit price of your choice. Currently stock is trading at Rs.80 you can place a cover order by keeping the buying price at Rs.75 and stop-loss as Rs.70 .
The moment stock comes to Rs.75 or lower than that your limit order will get executed & stop-loss order will be placed. In case if stock fall to Rs.70 this stop-loss order will also get executed. You can see your profit/loss in admin position.
One of the major benefit of cover order is, it reduces your risk or exposure in market. By using cover order, you are lowering your risk and ensuring that your losses are limited. Moreover you will get additional leverage or margin if you use CO order. You can place cover order only for intraday trades not for delivery based.
What is Bracket Order (BO)?
Bracket orders are very interesting, in this types of order you can place buy/sell price, at limit or market rate, with a a stop-loss and a target fixed. The benefits of multiple orders placed through bracket order is, it allows you to fully automate your trade.
Your stop loss or target order should be in absolute points and not at the price. For example, if the limit price at which you have purchased the stock is Rs. 100 and you want to set a sell stop-loss order at 95 then you should enter 5 in the stop loss field. Similarly, to set a target sell order at 105 you should enter 5 in the target field.
As you have already given all the information to exchange about your order, you risk get reduced and the margin offered to you by broker gets exponentially high. Similar to other orders it is only useful if you are placing intraday trades.
What Is Basket Order?
In Basket order you can place multiple orders at one time for multiple scrips all at once. First you have to create a basket, you can create multiple orders for same or different securities and join these orders together to be placed in a single go.
Basket orders save time as the all orders in the basket are placed together instead of placing each order one by one.
Why Basket Order?
- One can create 30 basket with 50 scrips each (depends upon you broker it may be more than that)
- It can be created for equity and equity derivatives segment
- Equity basket can be created after market hours as well
How to create Basket Order?
You may create a basket order with Buy / Sell order of multiple stock
Once the basket are created, one can just choose the relevant basket to place the order in single go. The moment the triggers get hit that you placed (particular price to buy sell), your orders will gets placed.
What Is Good Till Triggered Order(GTT)?
The Good till triggered (GTT) orders are quite helpful when you stay busy and does not have time to login to the trading terminal. By using GTT orders you can place trades at a particular price with a stop-loss and a target.
This orders that are valid until cancelled and you do not need to login every to check the price or placing trades.
Once done it remains in your account till 1 year(depend on broker), whenever the stock price comes to what you have mentioned in your order at the time placing the GTT , it will get executed at that price.
Likewise all other triggers like stop-loss or targets also get active and if the stock reaches to any of them your positional will squared-off.
You don’t need to have any cash or margins available in your account to create a GTT, however you have to make sure there are enough funds in the trading account after order gets created. Also, all orders will be triggered and placed only during market hours.
The system only checks for margins when the GTT is triggered and an order needs to be placed on the exchange. You will need to have margin available only then.
Please check with your broker whether they have this type of orders, few other brokers offers another type of order also known as GTC(Good till cancelled).
What Is AMO (After market orders)?
By using AMO you can place orders for the next trading day the previous day itself.
This types of orders in stock market is available for people who can’t actively track the markets from 9:15 AM to 3:30 PM.
You could plan your trades and place your orders before the market opens. After-market orders can be placed on all the exchange segments.
Please note that if you place any after-market order between 9:15 AM and 3:45 PM, they will be rejected.
AMO is allowed only between 3:45 PM and 8:59 AM for equity and up to 9:10 AM for F&O.
For currency derivatives, AMO is allowed from 3.45 PM the previous day to 8:59 AM only.
As you can see in the above image you can choose AMO order type and select the type of order you want to place(normal, market, limit, stop-loss).
After-market orders are also allowed for commodity trading. After-market orders for commodity can be placed anytime during the day, orders will be sent to the exchange at 9:00 AM (MCX opening). So if you place an after market order at 8:59 it will get sent today and if you place it at 9:01 AM it’ll get sent tomorrow.
AMO orders can be placed only during the following time duration :
Equity – 3:45 PM to 8:59 AM
Currency – 3:45 PM to 8:59 AM
F&O – 3:45 PM to 9:10 AM
MCX – Anytime during the day, if placed during the market hours the order will go through the next day.
What Are Product Codes?
While placing orders you may see products codes such as MIS OR CNC some brokers may have MARGIN for intraday and DELIVERY for CNC. However they all mean the same thing, let us try to know what exactly they are:
What Is Margin Intraday Square Off (MIS)?
MIS as a product code is used for trading Intraday Equity, Intraday F&O, and Intraday Commodity Trading. You enjoy additional margin using the MIS product code. All the positions under the MIS product code will get automatically squared off, if you do not do it from your end before the market gets closed.
Depending upon your broker the timing for auto square-off may vary 3:15 to 3:25 usually. Some brokers do charge for auto square-off trades so check with them while opening your account.
What Is Cash and Carry (CNC)?
CNC is used for delivery based trading. You will not get any leverage nor will your position be auto squared off if you use CNC. You will not be able to sell using the product code CNC without holding the particular stock in your demat account. Moreover you won’t get any margin if you use CNC as a product code.
Order Conditions In Stock Market:
A Trading Member can enter various types of orders depending upon his/her requirements. These conditions are generally classified into two categories: time related conditions and price-related conditions. We have already covered price related conditions above.
Time Conditions Order Type
IOC – An Immediate or Cancel (IOC) order allows to buy or sell a security as soon as the order is released into the market. In case if orders is failed then it will be removed from the market. There are chances of Partial match for the order, and the remaining unmatched portion of the order is cancelled immediately.
DAY – As the name suggests, a day order is valid for the day on which it is entered. If the order is not matched during the day in market, the order gets cancelled automatically at the end of the trading day.
Below image represent what you need to do step by step:
Once you have placed order – broker will send it to exchange – Exchange will find counter party – Exchange than confirm to broker – Broker debit/credit your account depending on your order type.
These are the major types of orders in stock market in India, and one should definitely be aware to maximize the trade profitability. It may happen few of them may be called with some other depending on your broker but by and large the rules remains same.
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