Different Order Types In Stock Market
In order to trade like an expert, it is very important that you understand market orders well. With such knowledge, you must not owe to worry to trade in any of the market segments. Whether it is stock market, derivatives market, commodities market or a currency market in India.
These market orders are nothing but instructions used while buying and selling a security in the stock market, bond market, currency market, derivative market, and commodity market. Each order is unique and has a different role to perform.
These orders can be directed to a broker or a trading terminal. Mostly the orders are based on the standardized set of instructions. Let us explore the various types of orders:
What is an order?
An order is nothing but an instruction that an investor gives to buy or sell stocks on a trading platform or to a stock broker. There are different order types in the market.
Here are a few important order types you should know:
A market order is an order to buy or sell a security at current market prices. Once placed, this order is to be executed immediately. The important feature of a market order is that it guarantees the execution of the order. However, the price at which the order is to be executed cannot be guaranteed.
For example, imagine that the current market price of stock X is Rs 120. You place a market order to buy the stock at this price. Your order would be executed immediately. However, there’s no guarantee that the security is bought at the ‘ask’ price of Rs 120.
This is because the market is volatile; prices fluctuate ever second. And the last-traded price in the market may have already changed by the time you bid your order. However, you would receive a price that is closer to your bid price, provided the stock you’re buying is a well traded or “liquid” stock.
A limit order allows you to place an order in a security at the price you want. So, a buy limit order means you are ready to buy the security at a specific price or lower. And a sell limit order means you wish to sell the security at the limit price or higher. There is however no guarantee that this order will get executed, unlike Market Orders.
This can be understood better through an example.
If you put a buy limit order for a stock at Rs 50, it means that you are ready to buy the stock at a price equal to or lower than Rs 50. Similarly, a sell limit order for a stock at Rs 50 means that you would like to sell the stock at Rs 50 or higher.
The best part is that this helps you ensure you don’t have to follow the stock trend every second to get the right price. The limit order automates your trading to a certain degree. Such orders can last for a day, a few weeks and sometimes even a month or more.
This is an order to buy or sell a stock whenever the stock price reaches a specific value. This value is known as the ‘stop price’. The stop order remains dormant until this price is reached. And once the price is reached, the stop order becomes a market order or limit order and your order is placed.
A stop loss order is quite useful if you don’t have the time to track and execute stop losses on your trades during the day. For example, you know that you would face a big loss if stock X falls below the price of Rs 35. But since you cannot monitor the stock regularly, you can put a stop order to sell the stock once it reaches this level.
This way, you can avoid a major loss. That’s the reason why this type of order is also known as a ‘stop-loss’ order.
Types of Stop Loss Orders
1. Stop loss Market Order
Stop Loss Market Order A “Stop loss market order” is similar to stop loss where the trader sets a trigger price to exit the trade at the best available price
Here, as soon as the trigger price is about to reach, a market order is generated and executed at the market rate immediately.
Suppose there is a sell position at Rs. 100 and trigger price for stop loss is placed at Rs.95. If the stop loss is triggered, the shares will be bought at the best available price in the market.
[Suggested Reading: What is a stop loss market order or SL-M order?]
2. Stop Loss Limit Order
This is a trade where the order is sent to the exchange after the trigger is hit is a “stop loss limit order”, i.e. the trade price needs to be defined by the user previously.
Suppose there is a sell position at Rs. 100 and trigger price for stop loss is placed at Rs.95. If the stop loss is triggered the order will be sent to the exchange and later the trade would be executed at the set price Rs. 95.
What is the Difference Between a “Limit Stop Loss” and a “Market Stop Loss”?
- In the market stop loss, the trade is executed at the best available price after the trigger is hit.
- In a limit stop loss, the trade is executed at the set price after the trigger is hit.
Cover orders are a blend of market orders and stop-loss order. The objective behind this order is to mitigate your risks. The buy or sell order remain market orders. But in this case, you would also have to set a stop-loss price and the limit price.
However, there is a certain amount of leverage that is provided in the cover orders. In trading terms, the leverage is the amount of money that can be borrowed from the broker for placing an order.
Therefore the stop-loss price needs to be within a predetermined range based on the security and the specifications of your broker.
Further to it, there is an advanced version of cover order too. So if a trailing stop loss is added to cover order it becomes bracket orders.
Market orders and limit orders on the basis of the time period
There are certain orders which are valid only for a particular time period. These orders can be market orders or limit orders that are valid from the time the order is entered to the end of the trading day. These orders are also known as a day order or good for day order. Further to it, there are certain orders also which depend on a time frame longer than a day.
Goods-till-date orders are the smart market tool which allows you to buy or sell a stock usually within 90 days at a pre-determined price say for instance at INR 1,700 per share. Let us say if you have stocks of TCS and want to sell it after its quarterly earnings release. This you expect some decline in the IT giant’s global revenue due to tightening of VISA norms in the US and economic crisis in the Eurozone and the US.
As a result, you can see the price of the stock coming down. In this case, you have already set a price at INR 1700 so even if it falls below this price, you can still sell it at INR 1700 itself. You may also choose to extend the goods-till-order date to a fixed date in the future, but this day must also be a market day.
As the name suggests, good-till-canceled order whether to buy or sell remains in the market only until you cancels it. The validity of good-till-canceled order may be 30-60 days. There can be different policies related to good-till-canceled orders. Therefore you need to check with your broker regarding the details.
One cancels the other order
A one-cancels-the other order is a meaningful risk mitigation tool. This kind of order comes into picture when the orders are made in pairs. It is also called ‘the order cancels the order’. Whenever one order is made, the other gets canceled automatically. This can also be considered as goods-till-canceled order in the longer term.
Let’s suppose you buy 500 shares of XYZ company for INR 1000 each and are bullish on the market. You can set a limit order at INR 1200. However, you also want to limit the losses, hence you fix the stop-loss order at INR 900.
Submitting the one-cancels-the other market orders handles both the scenarios, whether bullish or bearish. It also inculcates a sense of discipline in the trader’s mind.
Immediate-or-cancel order is a kind of order wherein the order to buy or sell security must be immediately made with the broker. If there is any portion of the order that could not be executed, the portion stands canceled.
Suppose you submit an order to buy 500 shares at INR 50 but only 300 shares could be bought, rest of the order for 250 shares remain canceled. This kind of trade with immediate-or-cancel order ensures certainty of order and also enables you to effectively use the remaining portion of the order.
Fill or kill order
Fill-or-kill order is also a kind of immediate-or-cancel order with one major difference. The order has to be made immediately and in full. If it is not executed for any reason, the entire order stands to be canceled. Let us say you want to buy ABC stocks in bulk say 2000 because there is a price correction from INR 500 to INR 450.
The fill or kill order trade ensures that this order is executed at a particular price. If it couldn’t be executed due to whatever reason, the entire order for 2000 shares will be canceled.
Though all-or-none order is similar to other orders, it is absolutely duration based. These orders can be valid for a full trading day or even more than that.
For example, if you want to buy 200 shares of ABC at INR 50 and the current price is INR 60. You would have to wait until the price falls to INR 50.
The All-or-none order trade remains active until the order is ‘live’. As the name suggests, these orders will either execute in full or will not execute at all.
At the opening order
The shares show significant movement at the beginning of the trading session. At-the-opening order is an instruction to buy or sell a stock placed at the beginning of the trading session.
If this order cannot be executed in full or part as the first thing, then it will be canceled. An at-the-opening order is very useful if you do not have enough flexibility in time to trade.
As the name suggests, at-the-close orders are market orders to sell the stock at the end of the trading session. The price of selling will be the closing price.
If it isn’t possible to execute the order, it will be canceled. Normally, the at-the-close market orders will take place in the last 60 seconds of trading.
Intraday square-off order
This kind of intraday square-off order needs to be squared off in the very same trading day. Since there is an entire trading day with you, you can benefit from the price fluctuations during the session.
In case, you do not close the open trade on or before 3 pm, the order will square-off or close by default. There is also a higher amount of leverage that you can enjoy on these trades.
Order sends order
This type of order sends order has multiple orders attached to a single order. The single order is the main order. The order sends order is to reduce exposure to risks. Let us say there is the main order to buy 200 shares while buying 50 shares of another company.
At the same time, there may be another order which is a limit order. Such limit orders might associate with the primary order.
This way we see that you can link multiple orders to a single order. However, these orders get an execution in the set or series. But the execution only takes place after the execution of the primary orders.
This is indeed a very unique kind of order. As the name suggests, only a part of the iceberg order is visible in the system. Plus, the system hides automatically a large part of such orders within the system. Only the visible part of the orders get preference in the stock exchange, the remaining parts do not.
The iceberg order is suitable for the institutions whose not only wish to purchase huge volumes of shares but hide a big portion of it.
Seasoned traders of NSE and BSE or MCX and NCDEX can distinctly identify iceberg orders from other orders and submit their order before it so as to take arbitrage related benefits.