What are the different order types available and how are they Executed?
We always get confused what type of order to be placed that can benefit me. So, we are here with the solutions have a look below and place correct order while trading.
Market Order
A market order is an order to buy or sell scrips at the current best available price. Once placed, this order is to be executed immediately. The important feature of a market order is that it guarantees the execution of the order. However, the price at which the order is to be executed cannot be guaranteed.
For example, imagine that the current market price of stock Z is Rs 400. You place a market order to buy the stock at this price. Your order would be executed immediately. However, there’s no guarantee that the stock is bought at the ‘ask’ price of Rs 400.
This is because the market is volatile prices fluctuate every second and the last-traded price in the market may have already changed by the time you bid your order.
Limit Order
A limit order is an order to buy or sell scripts at a specified price. When you are buying, you instruct your broker not to go higher than the specified price and when you are selling you instruct your broker not to sell below your specified price. If you put a buy limit order for a stock at Rs 500, it means that you are ready to buy the stock at a price equal to or lower than Rs 500. Similarly, a sell limit order for a stock at Rs 500 means that you would like to sell the stock at Rs 500 or higher.
The best part is that this helps you ensure you don’t have to follow the stock trend every second to get the right price. The limit order automates your trading to a certain degree. Such orders can last for a day, a few weeks and sometimes even a month or more.
Stop Loss and Stop Loss Market Order
A stop-loss order remains passively in the exchange’s stop-loss order book until your defined trigger price is breached. Once the trigger is breached, the order works exactly like a limit (SL) or market (SL-M) order. A stop loss order is quite useful if you don’t have the time to track and execute stop losses on your trades during the day. For example, you know that you would face a big loss if stock X fell below the price of Rs 35. But since you cannot monitor the stock regularly, you can put a stop order to sell the stock once it reaches this level.
This way, you can avoid a major loss. That’s the reason why this type of order is also known as a ‘stop-loss’ order.
So, we learnt something Interesting in this blog. Hope you liked the content. If you have any question write below in comment section. I would happy to answer them. See you soon ….
