The beginner’s guide to order placement

25 Jan 2020

Most of us have come across a situation, where we tried calling the broker for placing an order but due to delayed communication the levels were missed. Instances of miscommunication are also common. So, it is better to know about the basic order types and start placing orders yourself.

The most common question that arises when you decide to place an order is what type of order to place, because there are various different type of orders depending on the strategy of your trade.

There are three main components which form an order, the price of the share or security, the time of order placement and the quantity of share or security which is being traded. The variations in order are present for the precision and security of the trader and investor. Multiple orders of different types are also placed to execute a single trade for better precision and results.

There are basically three different type of orders in the stock market that can be placed on the exchanges. The exchange shows many more types, but those order types are actually the variation of the three basic orders.

1) Market Order: - This type of order type is generally used by a trader or investor to buy or sell his securities at the best market available. In a market order, there is no need to mention the price, only the quantity and security is required. This order is usually executed immediately because it is free from any sort of price commitments.

There are further variations based on the market order. The first one being Market on Open Order which means that the trade should be done during the opening range of the trading prices, which means that the price for selling will be highest and the price for buying will be lowest.

The Market on Close Order is the second variation of Market Order which is done during the market closing. It is done at the price available at that time. The price is usually the volume weighted average price of the security in the last half hour before the market closing. The trade takes place in an aftermarket session known as post-closing session.

2) Limit Order: - The main variation that limit order has over the market order is that it requires the trader to specify the price unlike market order. The trader needs to set the buying or selling price known as entry or exit price respectively, and then buying at or below the market price or selling at or above it. At least one price needs to be specified in case of limit orders which can be changed any time before the execution of the order. It is not necessary for a limit orders to get executed as the limit or targets are not certain.

A variation of the limit order is IOC order (Immediate or Cancel). The trader puts the current market rate as the limit price. The order only gets executed for the available quantity at that particular rate. The pending quantity, which is not executed, is not kept pending in the order book and is usually cancelled.

3) Stop Loss Order (SL Order): - The main agenda of a Stop Loss order is to cut the losses of the traders up to some extent. They are basically opposite of limit orders. There are two prices which are required for placing a SL order, a trigger price and an execution price. The trigger price is the price at which the order gets activated and the execution price is the price up to which the order can be executed. In case of SL order both the levels need to be necessarily achieved by the market, in case any one of them is also missed, the order doesn’t gets executed.

A trader needs to very clear of the different type of orders available and should select the right one for trading. Order selection is one of the most important factors for precise execution. Proper order selection is as important as the selection of top stocks to watch. It is better to get an idea of the different order types and the variations available before placing any trade.

You can’t always rely on your broker to place orders on your behalf. Miscommunication and delayed communication with the broker can result in losses. It is better to start placing orders and trading yourself. You can take the services of any certified investment advisor.

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