Exploring the Different Types of Stock Market Orders and How They Operate

Today we will be learning various types of orders in stock market or share market . I know many of you might be aware of this ,however for beginners knowing basics about stock market is very important. Once you are aware of different types of orders placed in share market ,it becomes easy to trade smoothly.

At the present time internet has made our daily lives much easier. This helps in learning about anything instantly. As an trader or investor now you can buy and sell stocks by yourself right from the comfort of your home or office. To make it more convenient trading platforms are now available on your mobile as well .

Moreover to get the best possible outcome from your trading, it becomes vital that you know the different types of orders in the market. This helps you Choosing the right order type which in return maximise your profits in the stock market. Before knowing types of orders let us know what exactly a order mean.

What Is An Stock Market Order?

An order is nothing but an instruction or command that an trader or investor gives to buy or sell stocks on a trading platform or to a stock broker. This can be done online through trading terminal provided to you by your broker. In case if you are not user friendly towards technology you can do call&trade as well .There are different types of order available in the market.

Types of Orders In The Stock Market

Let us learn important order types one should know :

Market Order

A market order is an order to buy or sell a security at (spot) current market prices. When we say current market price it means the real time price of a security trading in market. This order gets executed immediately as soon as you place it.

One of the benefit of a market order is that it guarantees the execution of the order. It means the order will get executed for sure depending upon the price its currently trading.

Not to mention, the price at which the order gets executed cannot be guaranteed. The reason is price of a security fluctuates every micro second in market.

As an illustration, suppose current market price of a stock A is Rs 100. You decided to buy 1000 quantity of this share & placed a market order. Your order gets executed immediately.

However, there’s no guarantee that the share would be bought at the ‘ask’ price of Rs 100. It might happen that your order get divided in to multiple of total quantity.

As a result you would receive a price that is closer to your bid price for eg. 300 quantity at 100.10 ,400 at 100.20 & remaining 300 at 100 . You can see or even calculate your average buying price in your trading terminal.

This happens because the market is volatile in nature: 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.

Limit order

Unlike market order ,limit order allows you to place an order in a security at the price of your choice. This means when you buy a share using limit order you have the freedom to choose the price at which order gets executed in market.

So when you buy a share using limit order the amount you mentioned in orderbox , either it will get executed at that price or lower than that price.

Similarly for a sell limit order means you wish to sell the security at the limit price or higher. As a matter of fact there is no guarantee that this order will get executed, unlike Market Orders.

Let us understood this through an example.

Suppose you place a buy limit order for a stock at Rs 80, it means that you are ready to buy the stock at a price equal to or lower than Rs 80. In like manner, a sell limit order for a stock at Rs 80 means that you would like to sell the stock at Rs 80 or at a higher price .

Given these points limit order transform your trading to a certain point. As an authority you can decide the price at which you want the order to get executed. However limit orders can stay in your order book but does not get executed .As the price of security does not come at or below the price mentioned by you .

Stop order or Stop Loss order

Suppose you are holding a particular stock, suddenly it started falling heavily (it does happens in real time market)due to some negative news. This can be very dangerous as it can lead to huge loss.

To avoid getting in such situation in market stop-loss order is required. Stop-loss orders prevent your losses from being unlimited to limited .

As an illustration, if you have bought a stock at Rs 100 and you want to limit the loss at 97, you can place an order in the terminal to sell the stock as soon as the stock comes to 97. This kind of order is called as a Stop Loss order.

On the positives side, you are placing it to stop a loss which could be more than your risk appetite. A stop loss order is very useful if you don’t have the time to track and execute stop- losses on your trades during the day.

The stop order remains inactive until stop-price is reached. Once this price is reached, the stop order becomes a market order or limit order and your order is placed .

You might be thinking what do i mean when i said stop order becomes a market order or limit order. See similar to market & limit order we read above, there is stop-loss market order and stop-loss limit order. Stop-loss market or SL-M works in same fashion as normal market order .

SL-M means an market order with a stop loss .The only difference is when your share reaches this price you kept to avoid losses it will get triggered.

Stop-Loss limit order means a limit order with a stop-loss . So first you decide the price at which stock will be bought or sold and to avoid losses you kept a stop-loss price .

Cover Order

Till now we have learnt market order ,limit order and stop-loss order . Cover order is a combination of this three orders.

In this types of orders , you can buy (or sell) shares with keeping it as market price ,or limit price with a stop-loss order. You would also have to specify a Stop-Loss Trigger Price (STLP) . This is nothing but the stop-loss to avoid losses.

Let us take an example- suppose you want to buy a share however you want to buy it a limit price of your choice .Currently it is trading at Rs.50 you can place a cover order by keeping the buying price at Rs.48 and stoploss as Rs.46 .

The moment stock comes to Rs.48 or lower than that your limit order will get executed & stop-loss order will be placed .In case if stock fall to Rs.46 this stlp will also get executed and you get the net profit and loss.

The benefit of cover order is your risk exposure in the market automatically get reduces. By using cover order, you are lowering your risk and ensuring that your losses are limited. Moreover you will enjoy additional leverage or margin in coverday.

Depending up on your broker and security type you need to place the STLP as you get added leverage. You can place cover order only for intraday trades. To know what is intraday trading or day trading click here.

Bracket Orders (BO)

What if i tell you there is a order where you can place buying price (selling price) ,stop-loss price as well as target price. Bracket orders consist of all this. The benefits of multiple orders placed through bracket order is, it allows you to fully automate a particular trade in a given security.

It essentially consists of 3 Legs or individual orders, which allows you to place a buy or sell order, its target order as well as its stop loss order.

The only drawback is that Bracket Orders typically restricted to a single day . So your order get squared up before 3:15 in case of Equity , future & option and before 11:15 in case of commodity .

Product Codes

There are different product available for different segment and type of trade. The name may be different across various brokers .

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. At Rupeezy we provide up to 40x times leverage based on what stock you are trading in equity segment.

All the positions under the MIS product code will get automatically squared off at 3.15 PM. At Rupeezy you can write (sell) Nifty and banknifty at 2500 intraday in FNO segment .

Cash and Carry (CNC)

CNC  is used for delivery based trading of equity and FNO. 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. For FNO trades the contract get carryover if use Carry as an product type .

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 releated conditiond above.

Time Conditions Order Type

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.

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.

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So this were the different types of orders in stock market. If you have any suggestion ,feedback or question related to stock market ,you can leave it below in comments .