TYPES OF ORDERS IN STOCK MARKET
ORDER is an instruction given by the investor to purchase or sell the stocks on a trading platform or the broker platform. There are several types of orders in the stock market.
Types of orders in stock market:
- Market order: it is an order given by the investor to buy securities at the current market price. This type of order gets executed immediately. The price at which the order gets executed can’t be guaranteed as the stock prices change within a fraction of seconds and the last traded price (LTP) changes by the time the order gets executed. However, the price is nearer to the bid price. In a chart, the body of the candlesticks represent the market orders.
- Limit Order: it is an order given by the investor to buy or sell securities at a specific predetermined price. In other words, the buy limit order gets executed only when the spot price is less than or equal to the limit price (i.e., spot price <= limit price) and the sell limit orders get executed only when the spot price is greater than or equal to the limit price (i.e., spot price >= limit price). Since there is no guarantee that this type of orders get executed at a later time, they are also known as pending orders. Whenever limit orders get executed, price rejections are seen.
For example, the stock price of Axis bank on 31st July 2020 at 3:30PM in a 30 minute timeframe is around Rs. 431.65 The market order by an investor gets executed around the same price. Suppose the investor initiates a buy limit order at a limit price of Rs. 420, this order gets executed only when the stock price of Axis bank reaches or goes below Rs. 420. Similarly, if the investor initiates a sell limit order at a limit price of Rs. 440, it gets executed only if the spot price reaches or goes above Rs. 440.
- Stop Order: Stop orders are opposite of limit orders,i.e., if an investor wants to purchase a stock above market price,a buy stop order is initiated at a stop price greater than the market price. Similarly, if an investor wants to sell a stock below market price, a sell stop order is initiated at a stop price below the current market price.
For example, the current market price of some stock ABC is Rs.100 and the investor wants to buy the stock only when the price reaches Rs. 105, a buy stop order is initiated at a stop price of Rs. 105, which gets executed at a price greater than or equal to the stop price. Similarly, if he wants to sell the stock only if it reaches Rs. 95, a sell stop order is initiated at a stop price of Rs. 95, which gets executed at a price less than or equal to the stop price.
- Stop Loss Order: this type of orders are used by investors when they don’t want to monitor the stock price continuously. Unlike limit orders which get executed when they enter a price range, stop loss orders remain inactive until a certain price is passed and then they are converted to market orders. As soon as it is converted to market order, the order gets executed at the best price, thereby reducing the loss incurred.
For example, an investor bought the above Axis bank shares at Rs. 462 and initiated a stop loss order at a stop price of Rs. 455. The order remains inactive until the share price reaches Rs. 455. As soon as the price is reached, it is converted to a sell market order and gets executed at a best price reducing the loss. Else, the investor can exit if his target is reached.
- Stop-limit Order: generally, stop orders get converted to market orders at stop price and in stop order example, there is a chance of the buy stop order getting executed at a price of Rs. 110, if there is aggressiveness in the market. But if the investor wants to buy the stock at Rs. 105 only, then he can initiate a stop-limit order which converts the stop order to a limit order at Rs.105 and it gets executed only when the price is less than or equal to the limit price.
- MIS (Margin Intraday Squareup) Orders: this type of orders are used by intraday traders as MIS orders are intraday orders and they need to be squared off during the same day. If the trader does not squareoff this type of orders within the day, they are automatically squared off a few minutes before the close of the market and it is generally 30 minutes earlier in the case of the commodity and derivatives market.
- CNC (Cash N Carry) Orders: this type of orders are positional orders and the trader will not get any margin, nor will they be automatically squared off. Using CNC to buy and sell shares on the same day is considered as intraday trade only.
- Bracket Order: it is a type of order in which the investor enters the market with a buy/sell order along with a target and a stop loss order. When the main order is executed, the system will initiate the two other orders, i.e., target and stop loss order and when either of them executes, the other order is canceled. Bracket orders are only for intraday traders and they will be automatically squared off a few minutes before the close of the market.
- Cover Order: it is a buy/sell market order along with a compulsory stop loss order in a specific range, which cannot be canceled. The cover orders are automatically squared off a few minutes before the market closes and are useful only for intraday investors. Since the stop loss is compulsory, the leverage/margin is high.
For example, the current market price of a stock XYZ is Rs.5,000 but the investor wants to buy only at Rs.4,900. Then, he can initiate a cover order at Rs. 4,900 and a stop loss market order at Rs. 4,800 in a single order. When the buy order executes, the stop loss order is initiated. If the stop loss is not reached by the end of the day, the order is automatically closed at the market price, a few minutes before the end.
Similarly, the investor can set a target order at Rs. 5,100 and initiate a bracket order. Once the initial order is executed, the target and stop loss orders are initiated. If either of them is executed, the other is automatically canceled. If neither of them is executed, the system automatically executes the best order.
- GTC (Good Till Canceled) Orders: it is an order that remains active in the market until the trader cancels it specifically. Generally, the brokerage platforms keep a time restriction of 90 active days, i.e., the shares remain active for 90 days until specifically cancelled. When the time elapses, the order is automatically cancelled.
- GTD (Good Till Date) Orders: it is a type of order in which the investor can put a time restriction upto which the order can remain in the system and at the end of this period, the order is cleared. Usually, the brokerage platform restricts the maximum number of days to 90 active days.
- OCO (One Cancels the Other) Orders: these are a pair of conditional orders chosen such that if one order gets executed, the other order is automatically cancelled. Generally, most traders use limit orders and stop orders as the pair. OCO orders are used for stocks that trade in a wider price range. Also, multiple conditional orders can be placed at a time such that if one order gets executed, the rest of the orders get canceled. Bracket order is a classical example for this type of order.
- IOC (Immediate or Cancel) Orders: IOC order mandates that the maximum amount of the order should get executed either as market order or limit order in a very short span of time, generally in a few seconds, and the remaining order should be canceled. The order is completely canceled if no shares are traded.