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Types Of Orders In Stock Market

types of orders

In the age of the internet buying and selling shares of stock become super easy. You can buy and sell stocks from your comfort zone. To do so, you first place an order with your broker, and then the broker will place it on a stock exchange. Before buying and selling stocks, it’s essential to understand various types of orders in the stock market. The order is an instruction you give to the stockbroker while buying and selling stocks.

Here are a few types of orders in the stock market you should know:

Market Orders

A market order instructs a broker to buy and sell immediately at the best price available in the market. Market orders are widely used orders in a stock market because they guarantee the execution of the order. The one drawback of that it can be expensive to trade.

Let’s understand with an example:

Suppose the price of a stock is 100. You place an order to buy the share at the current market price. Now your trade will execute immediately, but there is no guarantee that your trade will be executed at this price.

Because of the volatility of the market, prices fluctuate every second. Therefore, sometimes your last bid price can be changed by the time you trade. Although you would receive the best price near your ask/bid price.

Limit Orders

A limit orders convey the almost same instruction: obtain the best price available in the market but not more than your specified price when buying, and accept a lower price than a specified price when selling.

You need to set a limit price when buying and selling stock to buy and sell at the same price.

For example, you want to buy a stock at the price of Rs.100 and you don’t want to pay a single penny more than the price of Rs.100. So you set a limit of Rs.100. Now your stock broker only buys a stock at the price of Rs.100. Although the broker also can buy stock for less than Rs.100 but not more than that.

The main problem of a limit order is that they may not execute. A limit order does not execute if the limit price on a buy order is too low, or if the limit price on the sell order is too high.

The main benefit of a limit order is you do not have to always be present in the market to wait at a price you want to buy.

Stop Orders

A stop order is an order in which you set a specified price to stop the trade. The stop order may not be filled until the stop price limit has been satisfied. Traders often call stop orders stop-loss orders because they use this with the hope of stopping any further losses.

For example, You buy a stock at a current price of Rs.100 and set a stop order at Rs.80. When the stock declines to Rs.80. your order would be executed.

It can be used in both long and short positions. In a short position, you set a price above a selling price.

Additional Types Of Orders

The above three types of orders are the most basic ones and essential either. Now we’ll look at additional types of orders that your stockbroker may or may not provide.

Stop Limit Orders

It is a mixture and combines the feature of both stop and limit order. A stop-limit order requires setting two prices—limit and stop prices. Its works like this, once the stock price hits the stop price, it becomes a limit order.

All-Or-Nothing(AON) Order

All-or-nothing orders can only trade if their entire size can be traded. For example, if you put in order to buy 1000 shares of an XYZ company at Rs.200, In the market there are only 700 shares that are willing to sell at that price, your order won’t be filled until there are at least 1000 shares available at your specified price.

Day Order

This is the most important one because if you don’t specify a time frame of your order, then the order would automatically be set as a day order. Thereby your order would expire on the same day of your trading. And if you’re a long-term investor make sure that your order is not selected on day order.

Good-till-Canceled Order

As the name suggests it only remains in the market until you cancel it. There can be different policies related to good till canceled orders. Thus checking the policies of your broker is essential.

Immediate Or Canceled Order

Immediate or canceled order is a type of order in which the order to buy or sell security must be immediately made with the broker or exchange. If they cannot fill in whole or in part, they cancel immediately. In some markets, It is also known as fill or kill orders.

Good-On-Close And Good-On-Open

Good on close, as the name suggests, trade on the closing of the day at the most recent price. Also called market-on-close orders.

A good-on-open order is an order to be executed at the day’s opening price. Sometimes traders call them market-on-open.

Conclusion

It is very important to understand the types of orders in the stock market to get benefits from these features. Choosing the best order can maximize your profit. It’s all up to you which type of order is appropriate for you in a particular situation.

Like if you are an investor then your preference should be market or limit orders. And if you’re a trader then your preference should be the best order type that maximizes your profit in short term.

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