Stock Market Order Types

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An order type is a pattern in which investors want their stock brokers to execute a stock market trade on the exchange. It depends on their trading objective.
Stock Market Order Types definition

An order type in the stock market is a method you choose to execute the buy/sell order by your broker. The common order types include a market order and a limit order. For example, you may want to buy a stock immediately at the current market price (market order) or you may want to fix a price for your order to get executed (limit order).

Other advance order types include Cover Order, Bracket Order and Good-till Cancelled Order.

You can choose the order type best suited to your trading objective from the following different types of stock market orders.


Order type in share market

1. Market Order

A Market Order is an order to buy or sell shares immediately, at the current market price. It guarantees that the trade will be executed (based on the availability of buyers and sellers) but does not guarantee an exact price.

A market order generally gets executed at or near the current bid (for a sell order) or ask (for a buy order) price. It gets executed at the best available price and not necessarily at the last traded price. Market orders are helpful when you need to get into or out of a trade quickly. For example, when the price of a stock is moving fast.

For example, an investor can place a Market Order to buy 5000 shares of XYZ stock. The order will get executed immediately at the best prices available in the market. Note that it may happen that the investor will end up purchasing 3000 shares at Rs 100, 500 shares at Rs 102, and the balance of 1500 shares at Rs 103.


2. Limit Order

A Limit Order is an order type where a trader specifies an exact price at which he is willing to buy or sell shares. If the order is executed, it will only happen at the specific limit price or better. In a Limit Order, there is no guarantee of execution.

A Buy Limit Order is an order to buy stocks at the specific limit price or lower. A Sell Limit Order is an order to sell stocks at the specific limit price or higher.

For example, an investor wants to purchase shares of XYZ stock for no more than Rs 1000, he can place a limit order for this amount. The order will only execute if the price of XYZ stock reaches Rs 1000 or lower.

Market Order Vs Limit Order

Order Limit Order

Orders are meant to be executed immediately at the current market price of a share.

It allows the investor to set a limit price at which he wants to buy or sell a stock.

Only quantity needs to be specified while placing an order.

Quantity and price both have to be specified while placing an order.

A market order focuses on the quick execution of an order and not on the share price.

A limit order gives more control over the price to the investor.

A Market Order exposes an investor to the risk of fluctuation in prices.

A Limit Order poses the risk of the trade never being executed if the share price never reaches the limit price set by an investor.

Market Orders have a greater chance of being fully executed.

Limit Orders guarantee the price at which the order gets executed.

The transaction takes place at live market prices

Orders are executed at price specified by the investor

 

Market, Limit and Stoploss Orders

 


3. Stoploss Order (SL Order)

A Stop-loss order is an order to buy or sell stocks as soon as the stock price reaches the specified trigger price/stop price.

A stop-loss order is to minimize losses due to stock price fluctuations. An investor can limit his/her losses by exiting a trade if the stock price reaches the specified stop-loss price. Buy stop-loss orders are placed above the market price. Sell stop-loss orders are placed below the market price.

For example, an investor has purchased shares of XYZ stock at Rs 1000. He expects the price to rise to Rs 1050 so that he can earn a profit. But it is possible that the stock price may go down.

In such a situation, the investor may decide his loss appetite as Rs 50 and set a Sell stop-loss order at Rs 950. Once the price of XYZ stock reaches Rs 950, the stop-loss order gets triggered. His shares are sold at Rs 950 automatically, and his loss is limited to Rs 50 only.

In the above example, the trader places one SL order with the upper price at Rs 1050 and the lower price at Rs 950. But internally it creates 2 trading orders which are linked together. Whenever one of them gets executed, the other order is cancelled automatically.


4. After Market Order (AMO Order)

An After Market Order is an order that is placed after-market hours when markets are closed. Stock markets in India remain open from 9:15 am to 3:30 pm for trading.

An After Market Order is especially useful for those investors who are busy during market hours but wish to trade. All stock brokers do not offer the After Market Order facility to their clients. The brokers who provide this facility specifically indicate the timings when After Market Orders are accepted.


5. Cover Order (CO)

A cover order is an advance order for intraday trading to reduce the risk of unlimited loss. In cover order, two individual orders are placed simultaneously. It consists of a market order and a compulsory stop-loss order in a specified range. Once the market order gets executed, the stop-loss order gets placed. An investor cannot cancel this Stop-Loss Order. The Stop-Loss order gets automatically cancelled when the trade closes the intraday position.

Example:

If XYZ stock is trading at Rs 100, an investor can place a cover order to buy it at Rs 100 with a stop-loss order for Rs 95. If the share price for XYZ rises to Rs 103 and the investor wants to book a profit and exit the trade, he can do so. If the share price falls below Rs 95, the stop-loss order will get triggered. The shares will automatically be sold at Rs 95.


6. Good till cancelled (GTC) Order

A GTC order allows a trader to place an order to buy/sell a stock that remains active until it gets fulfilled or cancelled by the trader. A trader can also set the expiry date for the validity of the order.

Only a few stock brokers offer GTC orders. A GTC order is generally valid for a year.

For example, an investor wants to purchase shares of XYZ stock for no more than Rs 1000, he or she can place a GTC order for this amount. If the stock is currently trading at Rs 1100, this order will remain active until it is fulfilled. It may take a few days or months for the order to get executed. If the investor wants to wait only for a month from the date of placing the order, he can specify the validity as one month only. The investor can also proactively cancel the order at any time before it is executed.

Zerodha provides an alternative to GTC orders called GTT Order (Good Till Triggered Order). Click on the link to know more about this order type.


7. Immediate or Cancelled Order (IOC)

When a trader places an Immediate or Cancel order, the order is either executed immediately or cancelled (if it does not get executed). In an IOC order, time is of the essence. It is of great utility to traders who do not have time to monitor the markets.

You can place an IOC order as a limit or market order. At times, an IOC order can get partially fulfilled.

For example, an investor places an IOC order to purchase 5000 shares of XYZ stock. At that moment, if only 3500 shares are available for sale in the market, the buy order for 3500 shares gets executed, and the buy order for 1500 shares gets cancelled.


8. Trailing Stoploss Order

A trailing stop-loss order is similar to a stop-loss order, but the stop price is dynamic. The stop-loss price trails with the movement of the stock price in the market if the stock price moves in your favour. It allows the investor to limit his loss without setting a limit on the possible profit. When placing a trailing stop-loss order, the investor has to enter a stop price and a trailing stop price.

For example, an investor has purchased shares of XYZ stock at Rs 1000. The investor may set a Sell stop-loss order at Rs 950, with a trailing stop-loss of Rs 5.

In this case, if the price of XYZ stock falls to Rs 980, the stop-loss price remains unchanged at Rs 950. If the price of XYZ increases to Rs 1005, the stop-loss price automatically changes to Rs 955. If the price increases to Rs 1008, the stop-loss settles at Rs 955 since the price increase is less than Rs 5 (the trailing stop-loss amount). If the price increases to Rs 1020, the stop-loss price changes to Rs 970. Now, if the price of XYZ stock drops to Rs 970, the stop-loss order is triggered. The shares are sold for around Rs 970.


9. Bracket Order (BO)

A Bracket Order consists of a bundle of three individual orders. It provides for complete automation of purchase or sale in a given stock, booking profits, and covering losses (if any). A Bracket Order has three orders which are as follows;

  1. A Buy/Sell Order
  2. A Target Order, and
  3. A Stop-Loss Order.

Once the Buy/Sell order gets executed, the target order and the stop-loss orders are

automatically placed.

For example, if XYZ stock is trading at Rs 100, an investor can place a bracket order to buy it at Rs 100 with a target order to sell at Rs 105 and a stop-loss order for Rs 95.

Bracket orders can only be used for intraday trades. Only a few stock brokers offer this order type to their clients.

Read more about Bracket Order:

Answered on


Frequently Asked Questions

  1. 1. What are the different order types in stocks?

    The instruction given by a client to his stock broker about how to carry out his/her trade is an order type. The three basic order types are;

    1. Market Order

      A Market Order is an order to buy or sell a specified quantity of shares immediately, at the current market price.

    2. Limit Order

      A Limit Order is an order type where a trader defines an exact price at which he is willing to buy or sell shares.

    3. Stop Order

      A Stop Order is an instruction to the stock broker to buy or sell stocks as soon as the stock price reaches the specified trigger price or stop price.

    All other order types stem from the above three order types.

     

  2. 2. Which is better limit order or market order?

    An investor must decide if a Market Order or a Limit Order is best suited to his trading objective. Below are some comparisons between a Market Order and a Limit Order.

    Limit Order Vs Market Order

    Limit Order Market Order

    A limit order is to set a limit price on the buy or sell order.

    A market order is to execute the trade instantly at the current market price.

    A limit order gives control over the price.

    A market order is for quick execution.

    The trade may doesn't get executed in Limit Order when the price doesn't reach.

    Markets orders usually get executed as long as there is a buyer or seller available.

    Limit Orders guarantee the price at which the order gets executed.

    Market Orders doesn't offer a price guarantee.

    Limit order works well when liquidity is low in the market for a particular share.

    Market order works well with high liquidity of shares available in the market for buy and sell.

     

  3. 3. What is the SL order type?

    Stop-loss is an advanced order facility that helps you sell your stock if it falls to a predefined price. It is designed to minimize losses and is used by traders who are unable to constantly track the price movement of their securities.

    One can limit his/her losses by exiting a trade if the stock price reaches the specific stop-loss price.

    Buy stop-loss orders are placed above the market price. Sell stop-loss orders are placed below the market price.

    Click here to read more about SL orders.

     

  4. 4. What is the trigger price in SL order?

    When placing a Stop-Loss Order, an investor has to compulsorily enter a trigger price (also known as a stop price). It is a Buy/ Sell order condition that one adds while placing a stop-loss order.

    In a Stop-Loss Market Order, the trigger price is the price at which the stop-loss trade gets executed.

    In a Stop-Loss Limit Order when the share price reaches the trigger price, the stop-loss order gets activated. The stop-loss order then gets executed at the limit price set by the investor.

     

  5. 5. What are Stock Market Order Types?

    A stock market investor can instruct a stock broker to execute his buy/sell order in a particular manner, also known as the order type. Stock brokers offer two standard order types including Market Order and Limit Order. Brokers also offer few advance order types including Stoploss Order, Cover Order, Bracket Order, GTC Order and trailing stop-loss order.

    A Market Order is an order to buy or sell shares immediately, at the current market price.

    A Limit Order is an order type where you can define an exact price at which you are willing to buy or sell shares.

     


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