Today, we'll learn about the various orders found on the stock market. I'm sure many of you are already aware of this, but for new investors, understanding the fundamentals of the stock market is crucial. It is simple to trade smoothly once you are aware of the various types of orders placed on the stock market.
The internet has significantly streamlined our daily lives as of late. This makes it easier to instantly learn anything. You can now buy and sell stocks on your own as a trader or investor from the convenience of your home or place of business. Trading platforms are now also accessible on your mobile device to make things more convenient.
Furthermore, it becomes crucial that you are aware of the various types of orders in the market if you want to maximize the results of your trading. This aids you in selecting the proper order type, which maximizes your stock market profits. Let's first understand what order actually means before learning about order types.
What is an order in the stock market?
An investor's instruction to a stockbroker to buy or sell stocks on the market is known as an Order in the stock market. In the stock market, a trader or investor may use a variety of order types. The broker or trading platform may start the trade on the investor's behalf, depending on the order type.
Types of orders in stock markets
Some of the most popular order types used on Indian stock markets are listed below. Some of them include risk management orders, price-based orders, and time-based orders. We will discuss each and every type of Order in more detail.
When you want to buy stock and hold it for more than a day, you must place a Delivery order. The stock exchange will transfer the purchased stock units to your Demat account. You should also choose this category when you want to sell stocks you previously bought and have been holding in your Demat account.
You need to place an Intraday order if you want to buy and sell a stock on the Same Day. You can cancel the order by submitting a sell order, or your stock broker will do so within the predetermined time frame at the current market price.
Depending on whether you want to purchase a stock at a fixed price or the current market price, you can choose between these two order types when buying or selling a stock.
You must specify the price at which you want to buy or sell a stock when placing this kind of order. The order will be carried out, and shares will be purchased or sold in accordance with the order if the current market price reaches the limit that you have set. This order type is utilised when a customer is not in a rush to purchase a stock and is willing to wait until the price of the stock reaches the level at which they feel comfortable doing so.
For example, Rajesh wants to buy 100 shares of Reliance at ₹2500 for delivery. however, is currently trading at ₹2505 per share. Rajesh will execute a delivery order for 100 shares at a limit price of ₹2500 in this case. The exchange will execute the order if 100 shares are available and the price of Reliance reaches ₹2500 within that day; otherwise, the order will automatically be cancelled at the close of trading.
You do not have to enter a price when placing this kind of order in order to buy or sell stocks. The order is placed, and as soon as shares are available at the current market price, it is immediately executed. This order is typically used when there is a need to buy or sell shares right away, such as during data releases, news releases, and other stock-related events.
For instance, Rajesh wants to purchase 100 shares of Reliance at the current exchange price of ₹2505. He has the option to use a market order to buy the shares right away. As soon as the order is placed, it is executed, and 100 shares are added to his trading account.
A GTT order, also known as a "Good Till Triggered" order, is a type of order that is executed when specific trigger price conditions specified by the user are met. GTT orders, in contrast to other order types, have a validity of one year and are therefore used by investors to set a target or stop-loss on their current long-term holdings. The majority of brokers offer GTT orders; you will need to confirm whether this service is offered by your broker or not.
STOP LOSS ORDER:
This type of order is used in addition to existing open positions to prevent losses that exceed an investor’s risk-taking ability. As the name implies, it prevents losses from deepening. You must select a trigger price when placing this order. Until the stock reaches the trigger price, the order will be dormant. Depending on whether the order was placed as a limit order (SL-L) or a market order (SL-M), it will be executed once it has been triggered.
For instance, Aniket has an open buy position in Tata Motors that he initiated at ₹400 for 100 shares. Aniket can afford to lose no more than 600 on this trade in the worst-case scenario. He must ensure that the trade is closed at ₹394 in order to manage this position and ensure that he does not lose more than ₹600 in this transaction. He can place a stop-loss limit order with a trigger price of ₹394 to ensure this. The stop-loss limit order will be triggered and the trade will be closed if the stock price reaches ₹394.
A cover order is a market order that has a stop loss range that has been predetermined by the stockbroker. By using a cover order, you can avoid having to separately place a stop loss order on each of your open positions. The order comes with a stop-loss trigger price that can be changed at a later time.
Ram wants to purchase Bajaj Finance, for instance, which is currently selling for 6000 per share. His broker has mentioned the stop-loss range for Bajaj Finance as ₹5400-6000 for the day for cover orders. He initiates the position with a stop-loss trigger at ₹5600, and the order is executed at the prevailing market price along with the stop-loss at ₹5600.
If the stock price becomes equal to ₹5600 before the market closes, then stop-loss will get triggered, Ram will lose ₹400 per share, and trade will be closed.
Before a trader initiates a position, a Bracket order is placed with a predetermined risk-reward in mind. It combines a buy/sell order, a stop loss order, and a target order, which are three different order types. If the stock, after being initiated, reaches either the target price or the stop loss trigger price, the other order will be cancelled. Target orders are cancelled if the stop loss is reached, and vice versa. Due to the fact that they are not required to manually monitor and close trades, this order is popular among intraday traders.
Although users have access to a variety of order types, it is still necessary to understand your needs in advance and place the order in accordance with them in order to effectively manage risks associated with trading or investing in equity markets.