There are many types of participants in the stock market. Clients can be categorized as active traders or investors, passive investors, margin-money based traders, intraday traders, delivery-based traders or investors. Not all of them are the same and neither are their requirements for participation in the stock market.
Depending upon the client’s requirements, various types of orders can be placed for execution. These include orders which are market price or stop loss based, super multiple orders based on margin finance, order execution types which are good for the day or good till canceled, immediate or cancel type, aftermarket orders, stop loss orders, or basket orders. let us examine the various order types in detail and the benefits of each type of order.
Also, termed as a normal Order, Market Order is used to buy or sell a stock at the current market price in any trading session. Based on the price at any particular time in a session, clients can buy or sell a stock in a normal manner, without using any other specific options provided by the broker. Shares bought through this order type can be held for the purpose of either intraday trading or delivery trading.
An order type which is selected to buy or sell any stock, at a very specific price as determined by the client is termed as a Limit Order. The price selected could be higher than the current market price, but at the same time doesn’t offer any guarantee of execution as the price of the stock may or may not reach the client selected price during that trading session.
As explained in the earlier section in detail, a client order placement without the availability of the full amount of the stocks being bought is called Margin Trading Order and the amount made available by the broker to buy the shares is called Margin Money. By considering the earlier existing shares or cash in the account as a collateral, the broker provides the loan to buy shares. In case of intraday trading, since the positions are squared off, only the profit or loss at the end of trading day is indicated.
A service extended only to institutional clients by the full service broker, that offers a higher-multiple exposure on specified stocks against the margin on offer, is termed as Super Multiple Order. All super Multiple orders need to define the company name, quantity, along with the order price. Super multiples are not offered for all company shares and have to be mandatorily squared-off in the same trading session. The multiple on offer is based on liquidity, volume, volatility etc. and any change in these factors, will reduce the super multiples offered.
An order placement where in the shares are bought for delivery only is termed as a Buy Delivery Order. The shares bought with this type of order are marked for delivery only and will be executed as per the specifications of the client requirement. The payment for these shares have to be made as per the settlement cycle and upon settlement, the shares will be available in the client’s account. Market participants who want to invest can use this type of order placement.
A type of order enabling the clients to place buy and sell orders, executable for that trading day is termed as Good For Day Order. Once the order is placed, it remains open either till the order is filled in or till the end of trading on that specific day, whichever is earlier. Incase, the order is not executed, either partially or fully by the end of the trading day, it stands cancelled at the close of trading. This order type is suitable for active participants, interested in buying or selling stocks on a specific day.
Also termed as Valid Till Cancelled (VTC), this type of order enables the client to place buy and sell orders with a specified time interval, for which instruction of buy/sell remains valid. Available only for the equity cash segment, GTC orders work on instructions given by client to place a buy or a sell order for any particular company shares, till the period of time selected for GTC orders, provided that execution of entire quantity is not completed.
The maximum possible validity of a GTC order is 365 days. This order type is suitable for passive price-sensitive investors, who want to buy shares of a particular company at a specific price. Currently, this type of order is disallowed by the regulator, but this is subjected to change in the future.
This type of order allows a client to buy or sell shares as soon as the order is released into the market, failing which, the order will be removed from the market. In case of a partial match for the order, the unmatched portion of the order is cancelled immediately. This order type can be used by active participants for buying/selling into companies, where there is an immediate or short term impact emanating out of changes in business prospects.
An order facility provided to the clients where the buy or sell orders can be placed beyond market hours for execution at the start of trade next day is termed as an After Market Order or AMO. This order system is good for market participants who are unable to track the stock market and place orders during the regular market hours. Investors can place orders in equity segment or F&O segment or commodities segment during non-trading hours between 4:00 p.m. of the current day till 9:00 a.m. of the next day.
A mechanism by which the system discovers best price for any given order (buy/sell) among the widely used stock exchanges of BSE & NSE for execution is termed as Smart Order Routing or SOR. Investors can place orders selecting exchange as SOR, which allows the system to automatically compare the price of the stock across the two exchanges and directly provides the best price possible. An order type suitable for price-sensitive active clients, gaining the benefit of minor price difference in the stock exchanges, where the particular company shares are traded.
A conditional order set by the clients, wherein, the execution of the order is possible only when the market price of that specifically selected stock reaches or moves above a threshold is termed as a Stop Loss Order. Only when the price of the stock crosses the trigger price, the order execution is initiated and upon completion, the client is informed immediately.
A regular stop loss order has the benefit of setting fixed price conditions, which can always be reassessed and adjusted according to the market conditions. An order type which can be used by extremely active market participants, who have knowledge of the stock price trends and want to take advantage of a buy or sell, activated by a trigger price.
An advanced order type compared to stop loss order, which allows the client to place a stop-loss, and is adjusted automatically by the system, as per the price movement of stocks is termed as Trailing Stop Loss Order. This order type can be used for both – trailing stop loss buy order as well as the trailing stop loss sell order.
This is useful in reducing the losses in case of any severe market fluctuations. The client has to specify the spread between the trigger price and prevailing market price. If the stock price moves up then the stop loss trigger price rises, accounting for the spread. Whereas in the case of a stock price falling, the trigger price remains the same and only when the stop loss price is triggered, the order is executed as a normal order.
At times, clients would want to place orders for buying different stocks in different quantities. Instead of placing multiple orders and losing the price advantage at times, the client can place a Basket Order, which allows to buy different company shares at different quantities at the price of their choice. This order type is very useful when clients want to buy shares of multiple companies at the same time.
As described in detail, clients can choose any of the options or a combination of the options to aid in their trading/investing strategies. However, traders have to remember that, trading in stock market is subject to many risks and hence, are requested to take informed decisions and not be swayed by stock market rumours or frivolous advice given by non-competent entities or individuals. It is essential for investors to follow an analysis based on fundamental and technical parameters of the selected companies, to invest better and support in their wealth building process.
Prior to analysis of any stock, it is critical to understand the financial health and the operations of the company and the widely defined stock parameters, which are essential in the appropriate selection of the stock for investment.
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