What are Different Types of Orders in Share Market
Various types of orders can be placed by traders/investors based on their risk appetite and rewards expectations. Different orders can be placed: Stop Loss Order, Market Order, Limit Order, Cover Order, Good till Trigger (GTT) Order, etc.
STOP LOSS ORDER
What is Stop Loss Order in Share Market?
A stop-loss is a buy/sell order placed to limit losses when there is a concern that prices may move against the trade. Stop loss works by automatically selling a security when its price reaches a certain level, known as the stop price. This helps traders avoid larger losses if the price of the security continues to drop.
Stop Loss is an automated trigger order placed by the trader / investor to sell shares if price of security falls below specified price / level. For Example, Mahesh holds 100 shares of Asian Paints, which he bought for Rs. 1000 per share. Due to any reason, if prices fall of the Asian Paints rapidly than in such situation Mahesh can place a stop loss order to sell the shares if price drops below Rs 80. This will help Mahesh to Lock the total loss to Rs.20 per share.
It is important to note that Stop Loss Order is valid only for One Day.
Type of Stop Loss Orders
1. Fixed Stop Loss Order
The Fixed Stop loss is a simple stop loss order where a fixed price is set below which if price of shares falls than automatic sale order is placed in your DEMAT account to sell shares as instructed in Stop Loss Order.
2. Trailing Stop Loss Order
Trailing Stop Loss Order is a complex stop loss order which limits the loss of profits that is earned on shares. In case of Trailing Stop Loss Order Fixed Percentage of Stop Loss Order is placed by Investor / Trader below which if price falls than Automated Sale Order is placed. Fixed Percentage is calculated on purchase price or current market price whichever is lower.
For Example, If Mahesh places a 10% Trailing – Stop Loss Order and purchases Asian Paints at Rs 1000. Now Price per shares increases to Rs. 1300. So in this case if the price of Asian Paints falls below Rs. 1170 per share than Automated Sale Order will be placed to sale the shares at Rs. 1170 per share. This will help Mahesh to restrict his loss of profit that is already earned.
Thus, trailing stop loss order fixes that once you have earned profit on a particular share, then it should be automatically sold if earned profit falls below specified percentage.
LIMIT ORDER:
What is Buy Limit Order?
Limit Order in simple terms means placing an order to buy a specified shares at a pre-set price limit. For Example, if current price of the Reliance is Rs 2,000 and investor places a Buy Limit Order to purchase shares at Rs. 1950. If the Market Price reaches Rs 1950, then an automatic Buy Order is placed to purchase shares of Reliance at Rs .1950.
Buy Limit Order typically helps investors to not loose the opportunity to buy scrips at lower prices in scenarios / expectations that price may fall of specificized shares.
What is Sell Limit Order?
Sell Limit Order, inverse of Buy Limit Order, means placing an order to sale shares above pre-set price limit. For Example, if you held shares of Reliance which is currently trading at Rs 2000 and investor intend to sale the shares at Rs. 2100, then he/she places Sell Limit Order which will automatically get triggered if price per shares crossed Rs 2100
Limit Order are used to maximize the gain and allows you to not lose the opportunity to sale at pre-set price or buy at desired price as per your financial set goals. It helps the investor has to specify a quantity and the desired price at which he or she wants to make the transaction.
Limit Order is valid only for One Day
MARKET ORDER:
What is Market Order in Stock Market?
A Market order is an order to buy or sell a security at the prevailing market price. This type of order is executed on the basis of the next available best price.
What is Importance of Market Order in Stock Market?
The purpose of a market order is to guarantee that your order gets filled. If you try to place a limit order at the bid or ask (Buy Limit Order or Sale Limit Order) by the time you enter your order the price might have moved and you might need to keep amending your limit order in order to buy or sell, and as such you start chasing the market.
COVER ORDER:
What is Cover Order?
A Cover Order can either be placed through a Market Order or a Limit Order placed along with the Mandatory Stop Loss Limits Set. The inherent risk is automatically reduced by placing the stop loss order simultaneously with the contract.
Cover orders assist traders to reduce downside risks and provide them better control over risk management. It can assist traders in trading more systematically because each trade always has a stop loss associated with it.
GTT Order:
What is GTT Order?
GTT order stands for Good Till Trigger order. GTT order allows you to buy or sell orders at a predetermined limit price. These orders are executed if the market price of the stock reaches your specified price also known as Trigger Price before the GTT order expires. A GTT order is a limit order where the product type can be delivery or margin.
The GTT feature is useful for investors who do not trade actively or do not have time to track the markets daily.
It is important to note that GTT Order is Valid for One Year unlike stop loss order or limit order that are valid only for one day