What are the different types of Stock orders?
Stock market trading is all about the art of choosing the right stock. It is very important to select the right stock after thorough research based upon both technical and fundamental analysis. Technical analysis helps in understanding the price movement of the stock on shorter periods such as hourly, daily, weekly and monthly. Whereas the fundamental analysis considers the larger period.
With the advent of internet and online trading platforms, a trader can now buy and sell the stocks from anywhere in the world. To do so, a trader needs to place an order with his broker. But a better understanding of different types of order will be beneficial.
What is an order?
An order is an instruction which is given by an investor either to buy or sell stocks on a trading platform or to a stockbroker. Let’s look at the type of different orders in the market. Here’s a few important orders one should know.
Market Order: It is an order to sell or buy a security at the current market price. As once it’s placed, this order will be executed immediately. But these orders do not guarantee about price, but they do guarantee the order’s immediate execution. Imagine that the current market price of Stock A is Rs 100. Now, a trader places market order to buy the stock at this price. As soon as he/she places an order, it would be executed immediately. However, there is no guarantee that the security is bought at the ask price of Rs 100. It’s mainly because the market fluctuates every second.
Limit Order: It allows to place an order at the price a trader wants. It provides the benefit to set the maximum or minimum price, which a trader is willing to buy or sell. It protects the trader from overpaying for buy and sell transactions in case a stock makes a flash spike or drop. With the advent of algorithmic trades, bots are notorious for spiking and dropping prices when a blast of market orders hit the tape. For example, suppose a trader puts a buy limit order of a stock at Rs 100, which means that he/she is ready to buy the stock at a price equal or lower than Rs 100. It helps in protecting his/her trade, irrespective of the movement in the market.
Stop Order: A stop order is a limit order that can be placed based on a pre-specified price or a trailing increment or percentage. It is an order to buy or sell a stock whenever the stock price reaches a specific value. After a certain point, if the specific price is hit, it will immediately trigger a market order to exit the specified number of shares in the position.
Cover order: A cover order is mainly a dual combination of market order and a stop-loss order. This means that the buy/sell order is always a market order that is accompanied with a compulsory stop loss order in a specified range as pre-defined by the system. It cannot be cancelled. One of the benefits is that it automatically reduces the risk due to compulsory stop loss order. At the same time, the margin requirement also automatically reduces thereby giving more leverage to the client for intra-day trading.
Margin Intraday Square off order (MIS): As once get the glimpse from the name, this is an intraday order. It is a high-risk strategy which allows a trader to buy more stock than he/she would be able to normally and can yield a huge profit if executed correctly. Basically, buying on margin means to borrow money from a broker to purchase stock. The investor can take position in the market by paying an initial margin of 50 percent (your own money), while the broker could finance the balance 50 percent.
Bracket Order (BO): Bracket order helps in limiting your loss by “ bracketing ‘’ an order with two opposite side orders. It combines the benefits of multiple orders placed simultaneously allowing a trader to fully automate a particular purchase or sale in a given security. In the bracket order, a buy order is bracketed by a high side sell limit order and a low side sell stop order. A sell order is bracketed by high side buy stop order and a low side buy limit order.
*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing