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Types of Orders in Stock Trading

Capital market is a place where stocks and bonds are traded. It includes the stock market and the bond market. Capital market is the ideal place for companies and governments to raise long-term funds. The capital market transactions are done while trading in the capital market securities. A typical capital market includes the trading of securities. Stocks and bonds are the two types of securities where the capital market investments are done. There are financial regulatory bodies in every country that monitor and regulate the capital market transactions in order to protect the interest of investors. SEBI (Securities Exchange Board of India) is the authority that regulates Indian Capital Market.

Market Transactions

A person who doesn’t have basic knowledge about the market mechanics will find it very difficult to transact in the stock market. But once if you understand the concepts, you will find it very easy to transact. Before a share is purchased or sold, you should instruct your broker about the order. It means you should specify the order very clearly, how the order is to be placed. Sending proper instructions to your broker through phone or online is the first step of securities trading. Basically there are two types of share transaction exist in the market such as;
Buy Orders
Buy Orders

Buy Orders

Buy orders are the orders to buy the stocks. These are placed when you expect a rise in share prices. The investor place a buy order when he finds the stock price is cheaper and the stock price will go up. Before placing an order you have to make sure that what is the price at which you are going to buy the stock, what is the quantity of shares you need, also ensure you have enough money to buy the stock.

Sell Orders

Sell orders are the orders to sell the stocks. If you are finding that the price of a particular stock that you are holding presently will go dawn, you have to place a sell order. The reason for selling can be anything either because the investment target has been met or you expect a decline in price.

Types of orders

There are seven major kinds of order in intraday Trading such as;
• Limit order
• Market Order
• Stop Loss Order
• Stop Loss Market Order
• Stop Loss Limit Order

Limit order

A Limit order is an order to buy or sell stocks at a specified price. Use of a Limit order helps to ensure that the customer will not buy/sell the stocks at a price less favorable than the limit price. Use of a Limit order, however, does not guarantee an execution. A limit order should have a Time in Force (TIF) value.

For Example:

1. A buy limit order for Bharti Airtel at Rs.410 will buy shares of Airtel at Rs.410 or less.
2. A sell limit order for Bharti Airtel at Rs.410 will sell shares of Airtel at Rs.410 or more.

Market Order

A market order is an order to buy or sell a stock at the price at it is currently available in the market. When you submit a market order, the order can execute at any price that is prevailing in the market. There is no guarantee in the money that you are going to receive.

For Example:

For example if you are placing a buy order for axis bank, the order will be executed at the price that is available in the market.

Stop Loss Order

A stop loss order permits you to place an order which gets activated only when the last traded price of the share is reached or crosses a predefined price. Stop loss price is also called as trigger price. If you feel that any particular share will be worth buy or sell only after it crosses certain price limits then this type of orders are good.

For Example:

Buy Hindalco at Rs 110 with a stop loss of Rs 100, it mean that if the share price falls to Rs 100, the shares will be sold, by limiting your loss to Rs 10. There are some demerits for Stop loss order. First, if the stop is placed too close to the current market price, the investor might have his position closed out because of a minor price fluctuation. We will take the same example. Buy Hindalco at Rs.110 with a stop loss of Rs. 108 and the target is Rs. 120.

Here;

Buy Price: 110
Target: 120
Stop Loss: 108
In this case, if the market opens at 110 after that it go down and touch Rs. 108, the stop loss will trigger. But after touching the Stop loss figure if the stock price started rising and it went till 120, you will lose the opportunity to make profit. So always remember don’t keep the stop loss price too close to the market price.

Stop Loss Market Order

A stop loss market order is a special kind of limit order; it is a mixture of stop loss order and market order. A stop loss market order to sell is treated as a market order when the stop loss price or a price below is reached/ touched. A stop market order to buy is treated as a market order when the stop price or a price above it is reached. Therefore, stop market order to sell is set at a price below the current market price, and a stop order to buy is set at a price above the current market price. The likely danger associated with Stop Loss Market Order is that they will become market orders after the expected price level has been reached, the actual transaction will take place some distance away from the price you had in mind when the order.

Stop Loss Limit Order

The stop loss limit order is an advanced version of stop loss order; it is a mixture of stop loss order and limit order. It overcomes the uncertainty associated with the stop loss market order, of not knowing what price the order will be executed at. The stop limit order gives you an opportunity to specify the limit price: the maximum price on which the buy order should filled or minimum price on which the sell order should filled. Therefore, a stop limit order to buy is activated as soon as the stop price or higher is reached, and then an attempt is made to buy at the limit price or lower. On the other hand, a stop limit order to sell is activated as soon as the stop price or lower is reached, and then an attempt is made to sell at the limit price or higher.

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