Whenever you buy or sell a security on your online trading platform, you transact by placing an order.
Apart from buy and sell orders, did you know that there are seven different types that you place while stock trading and that each order serves a different purpose?
Knowing the different types of orders is essential not only to gain higher profits but also to protect your market positions from unexpected downsides.
Different types of orders are available to you while trading on your online platform:
- At market Order: Normally, when you place a buy or sell order while stock trading, you are essentially placing an At Market order. The online trading platform simply places the order at whatever price is available in the market at the time of the execution of the order. Under this, buy orders are executed at the highest Ask price, and sell orders are executed at the lowest bid price.
- Limit Order: Under this order, you can specify a pre-determined price for both buy as well as sell orders. The order will only be executed if the share price reaches the limit price. This is usually used when you are not actively tracking prices, but you have a notional price at which you want to sell your shares through stock trading.
- Stop-loss Price: This is a price limit you must pre-set while placing your order because when the price of a share you have purchased starts falling. You can limit your losses by the stop loss limit price, which acts as a trigger, as the share will automatically get sold when the stop-loss limit price is reached. Stop-loss limit orders can be set for both buy and sell orders below or above the order execution price. You can set your stop-loss limit price at 2% below your buy price. In such a case, your losses are limited only to 2%. Similarly, when you have executed a sell order to make an intraday trade, but the share suddenly starts appreciating, if you don’t want to lose the share, a stop-loss limit price, 1% or 2% above the selling price will ensure that the share is bought back at that price. Your loss is limited to the difference between the stop loss price and your sell price.
- Stop Loss Market Order: The Stop-Loss market order has the same function as the stop loss limit order. Here a trigger is set, but a limit price is not specified. As the trigger level approaches, the stock is bought or sold at the best available market price after the trigger is hit.
- After Market Orders: The normal hours of stock trading are between 9.15 am to 3.30 pm. But a window for trading is allowed from 9.00 am to 9.15 am, which is called pre-market, and from 3.40 pm to 4.00 pm, which is called aftermarket. Aftermarket orders are placed generally at 3.40 pm, but only the buy or sell quantities are entered. The aftermarket order price is normally market-determined based on the bid and ask quantities.
- Immediate or Cancel Order: This is an order which has to be immediately executed at the time of placing the order while stock trading, otherwise, it stands cancelled.
- Cover Order: This is a type of combination order where you take a position on the buy or sell-side and includes a stop-loss limit order within its ambit.
- Bracket Order: This is an order where 3 orders are clubbed into one order. Normal combinations are a buy order with a target price and a stop-loss limit. All bracket orders are limit orders.
You need to understand the various types of orders but also use them judiciously while stock trading for your wealth maximisation and limit your downside.
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