Order Types & their Relevance

Order Types & their Relevance

As a stock market trader either individually or through a stock broker you will have to execute your position at any point of time. The term order actually refers to the instruction that the trader gives to the stock brokers for either buying or selling the stocks on the exchange. However there are several types of orders and as a trader you must be well versed with their implications for careful stock trading and analysis.

Types of orders & their relevance in stock market

Market Order

This is the simplest of all and easy to understand as well. All you need to do is contact your stock broker and place a buy or sell order for a particular share at a particular price and number. Nowadays such orders can also be placed through your online trading platform like trading apps or desktop trading software wherein you will get the option for stock trading at the comfort of your home. With a few clicks of the mouse you can easily place the order successfully. The price at which the order is placed will be the current market price and therefore there is no control on it if the market is highly volatile. In certain extreme cases the market order that is placed at a certain rate and the final amount received or paid may show a great difference. 

Stop Loss Order

This order is mostly used by the beginners and traders who are very careful in trading. You can protect your risk as well as limit your losses as well. The stop price is kept by the trader depending upon his loss taking capacity and that is the price at which the stock will be sold or bought. When the market price reaches the stop price the stock will be sold or bought at that price. This way the trader will be protected from further loss in case of declining share market trend at the same time limits his profit too in case of a increasing share market trend. The buy stop order price is fixed at above the current market price while the sell stop order price is fixed at below the current market price.

Limit Orders

The trader could after analysis and research decide upon a price and place the limit order by which the account will automatically open up when the price reaches the specified price. This way the trader need not necessarily check for the stock market updates every day. When the price reaches the specified price the stock broker will either sell or the buy the stock as the case may be. Because of online trading through trading apps and trading platforms the order entry is automated. In case the price does not move as per your forecast then your limit order will automatically gets cancelled thereby saving you from further losses. Irrespective of the price the order stands cancelled at the end of the day in case the price does not reach the prediction of the trader. This is mainly used by the trader in order in order to bring a price control and not for confirming the execution of the order.

Day Order

This is also popularly known as the good for the day order. As the name implies the order will stand good only till the end of the online trading session. A version of this is also known as the good till cancelled wherein the order will remain until there is specific cancellation instruction from the trader even after the stock trading day is over. It could last for specified number of days as set by the trader say 50 days or likewise.  There are many variations under this type of order like the fill or kill order, market on close order, market on open order and so on.

Also Read : Trading a Chess Board

One cancels the other order

The stock market trader could place two orders simultaneously though he wishes to execute either of them. Such order will let the trader place two orders for different stocks for a specified price and when the price of one of them touches the specified price then the other order gets cancelled and this will get executed. This way he will be able to take positions in two stocks and take a better decision.

There are several orders and depending upon the investor’s investment strategy these can be utilized.

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2 Comments

  • Sajan Kumar says:

    Very educative and informative. Keep it up and regularly post articles of interest to investors

    • Trade Smart Online says:

      Thanks for the comment 🙂 We will definitely continue our efforts to leverage the knowledge of investors. Do continue watching us…

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