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Types of Orders in the Indian Stock Market

Imagine Anish entered a restaurant, and the menu is filled with a thousand delicious food choices – now Anish is overwhelmed! Just like him, new traders who want to buy & sell shares feel overwhelmed by the different types of orders available. So, let’s go over the order types available in the Indian stock market and what they mean.

What is a Market Order?

If Anish ordered the first item he liked without worrying about the price, he placed the equivalent of a market order. You’ll never know what price the order is finally getting executed! Traders use this type of order to purchase or sell shares at the live market prices immediately.

For example, if Reliance was trading at ₹2,000 rupees and you place a market order to buy 100 shares, you would pay ₹20,000 (₹2,000*100) for it.

How is Market Order Placed?

You can place a market order by specifying the stock symbol, the number of shares and the action you want to take (buy or sell). The order is then executed at the next available market price.

What is a Limit Order?

Anish decided he wanted to eat noodles, but only if it was sold at ₹60. Since restaurant A was not willing to sell below  ₹80, he decided to walk down the street. Patience paid, and he found ₹60 noodles at restaurant B. Anish placed the equivalent of a limit order by specifying the maximum price he was willing to pay.

In the case of limit orders, the trader specifies the maximum price they’re willing to pay to buy or the minimum cost to sell a share.

Say you placed a limit buy order on 100 shares of HDFC Bank at  ₹2000; the order would only get executed if the price went below  ₹2000.

Are Limit Orders A Good Idea?

Yes, for several reasons! The three primary reasons include the following – 

  • Price control: With a limit order, you have more control over the price you pay for a stock.
  • Reduced risk: By specifying the price, you reduce the risk of buying higher or selling lower than expected in volatile markets. 
  • Better execution: In limit orders, you’ll either get the price you want, or the order won’t be fulfilled. 

What are Stop Loss Orders and How to Use Them?

Are you starting to feel that the stock market is like a dangerous jungle with too many options? Fret not; there are some safe order types meant to protect you!

Stop loss orders like the guards of a jungle – they protect your profits by capping any downside. 

A stop-loss order is a type of order that automatically triggers a sale or purchase of a stock when it reaches a specific price. 

types of stop order
stop loss orders

What is the SL-M Order in the Stock Market?

Stop Loss – Market order is the one way to “cut your losses and let your profits run!” It comes with the added functionality of a trigger price. What does that mean?

You set a threshold called trigger price, below which your broker shall sell the stock at the best available market price to limit losses.

SL-M Order

An illustration of the placement of a Buy trade for 50 ITC shares using a SL-M order with a trigger price of ₹262 is depicted above. Currently, the latest traded market price is ₹263.25, and the shares will be sold if the price drops below the specified trigger price.

Which order is better: SL or SLM?

Stop loss market (SL-M) or stop loss (SL) order – you choose to depend on your investment strategy and risk tolerance. Use a stop-loss order to exit a position if you want more control over the price. But if you’re looking to sell quickly to limit your losses, a stop-loss market order may be a better option.

An SL-M order is a stop loss order executed as a market order if the trigger price is hit – exiting the position at the best available price in the market.

An SL order is a stop loss order executed as a limit order if the specified price is hit.

Now, which one would you choose, and when?

What is GTT?

Let’s understand GTT orders with Anish’s help. He walked into a supermarket only to find his favourite cookie selling at a higher-than-usual price. So, he left a standing order with the cashier to sell him that cookie when it started trading at a lower specified rate.

Traders have this luxury in the stock market too. GTT orders remain in the system until the specified conditions about price & quantity are met. 

This type of order remains active until the specified price is triggered or one year, whichever comes first.

The essential advantage of using a GTT order is that you can shop for stocks over a period of 1 year with a purchase price target in mind.  This can help you take advantage of market opportunities without constant monitoring.

What are Cover Orders, and How do we Use Them?

Imagine you’re at a fancy restaurant and order a three-course meal, but you want to feel free after the main course. That’s where the concept of a “cover order” comes in. A cover order allows you to place a stop-loss order simultaneously with your trade to limit potential losses. 

A cover order is a combination of 2 orders – an entry order & a stop loss. If you want to protect yourself in case of a price drop, you can use the cover order to specify a stop loss.

What is the benefit of a cover order?

Cover orders act like insurance policies. They allow you to mitigate risk in the stock market. With a cover order, you can have peace of mind knowing that if the price of your stock drops, you won’t suffer huge losses.

What are After Market Orders

Have you ever wanted to order delivery after the restaurant has closed for the night? After-market orders allow you to place an order for a stock after the market has closed for the day.

An after-market order is a way to buy or sell securities after the stock market closes. The catch? After-market orders are executed at the stock market closes at 3:30 PM; if you place an after-market order to buy shares of TATA Motors at 5:00 PM, your trade will be executed at the opening price.

Can I Buy a Stock After the Market is Closed?

Yes, you can buy a stock after the market is closed through the after-market orders discussed above, after-market orders are executed at the next trading day’s opening price, but they still allow you to make trades outside regular market hours.

Difference between Trade and Order

Think of trade as placing an order for your meal, whereas the demand is just asking the waiter for the menu. In the stock market, a trade is the execution of a buy or sell order, whereas an order is a request to buy or sell a stock at a specified price.

In conclusion, the Indian stock market offers various orders that cater to different investment needs and styles. Whether you’re a long-term investor or a day trader, understanding market orders, cover orders, and after-market orders can help you make informed decisions and achieve your financial goals.

Remember, just like ordering your favourite dish, placing an order in the stock market is all about being informed and making the best decision. Happy investing!

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