The evolution of technology has blessed us with many things: access, speed, and autonomy. Many such advantages have trickled into the world of trading. If you are trading stocks on your own or plan to invest in stocks, you must understand the different types of trade orders in the stock market.
What are Trade Orders?
Trade orders are different buy and sell orders placed on financial assets such as stocks or derivatives on trading exchanges. They help match buyers and sellers who have matching order criteria. When equities or derivatives markets are highly volatile, trade orders help execute the trade swiftly, enabling successful completion.
Different Types of Trade Orders
You may have heard of market and limit orders, or buy and sell limits, even if you are a novice trader. These are the most common types of trade orders. However, if you intend to trade regularly in the stock market, then you need to know about other orders that can protect you from market fluctuations and increase your chances of making a profit.
- Market Order
It is the most common and essential form of trade. It is an order to buy or sell securities immediately at the current market price. If you place a buy order, it will be executed at or near the ask. If you place a sell order, it will be executed at or near the bid. Market orders may not be executed at the exact price last traded price. That is because markets are volatile and subject to change, but it will be executed as close to the price as possible. The advantage of market orders is that they are fulfilled immediately, provided there is sufficient liquidity.
- Limit Order
A limit order is a trade order in which you define the security price you wish to buy or sell. It is also called a pending order. A buy and sell limit orders allow you to set a predetermined price threshold for executing the order. Unless the security price reaches this level, the order will not go through. For instance, let's assume you want to buy a stock for Rs. 100 per share. It is currently trading at Rs. 105. Unless the stock price falls to Rs. 100, the trade will not be executed.
There are two different types of limit orders that you should know about:
- Buy Limit: A buy limit order is executed only when the security is at or below the specified price level.
- Sell Limit: A sell limit order is executed only at or above the specified price level.
A limit order is usually used when you believe you can buy the security at a price below the current market price or sell at a price above the current market price.
- Stop-Loss Order
A stop-loss order is a trade order that places a trigger price for the order to be executed. The trigger price is called the stop price. Until the stock price reaches the stop price, the order remains dormant. Once the stop price is achieved, the order converts into a market order. For instance, say you want to sell shares of a company when it reaches Rs. 100 per share. You can place a stop-loss sell order at this level. Until the shares reach this price level, the order will remain dormant. Once the prices reach Rs. 100, the order will become a market order and get executed. Stop-loss orders can be used when you don't have time to monitor the market, for example, when you are on vacation.
- Stop-Limit Order
A stop-limit order is a trade order similar to a stop-loss, but instead of converting it into a market order, it converts into a limit order. Here, you can set two price limits – a stop price that will convert the order into a buy or sell order and a limit price. When the share price hits the stop price, it will be converted into a limit order. Once the limit price is reached, the order will be executed. That is an excellent strategy to protect yourself from flash market crashes, where the price of shares dip but recover after a while.
- All or None
An all-or-none order places an order for a specific quantity of securities. For instance, if you wish to sell 1,000 stocks of a company at Rs. 45, but the market has an appetite only for 800 shares, the order will not be executed. That is especially useful for penny stocks or stocks that are illiquid. Without an all or none order, your order would have been fulfilled partially.
- Intraday Order
An intraday order is executed on the same day on or before market close. If you do not close the order before the end of the trading day, the positions are automatically squared off. That is the type of orders intraday traders usually use to benefit from market fluctuations on a given day.
- Immediate or Cancel Order
An immediate or cancel order aims to execute all or a subset of the order immediately. The rest of the order gets cancelled after that. Usually, this order executes within seconds or gets cancelled. If no shares are traded in the specified immediate interval, the entire order gets cancelled.
- Good Till Cancelled Order
A good till cancelled order places a time restriction for the trade to be executed. Such an order will remain active until you decide to cancel it. Usually, brokerages have a time limit until such an order can remain active – usually 90 days.
Final Word
To succeed at stock market trading, you need to understand the different types of market orders that exist and how they function. Only then can you decide which type of order will suit you, enabling you to benefit from the trade.
Using JM Financial’s BlinkTrade trading platform, you can make use of state-of-the-art features and tools. You can identify lucrative trading opportunities and take investment decisions on the move, make lightning fast orders placement such as buy and sell limit orders or stop-loss orders across Equity, Derivatives and Currency Segment that will catapult your stock market investing. benefit
- PAN Card
- Cancelled Cheque
- Latest 6 month Bank Statement (Only for Derivatives Trading)