What are the Different Types of Orders in Stock Market Trading?

 

Placing orders in the stock market is one of the most crucial points, where you need to be a little cautious. As there are various types of orders in the trading, you should know which type of order you are placing so that you can optimize your order management.

The order could be for buy or for sell but before, you enter into the trading you need to understand what type of order is suitable for you or as per the various market conditions, which order type you should use to make your trade more cost-effective. Hence, we are going to discuss here the types of orders with a few tips on order management systems in the stock market.

Order Meaning in Stock Market

An order in the stock market or trading is a kind of instruction to buy or sell a particular stock or underlying security given by the broker through the stock exchange on behalf of the trader or an investor, using the trading platform.

The orders can placed over the phone by calling to the brokers or manually through an online trading platform or using automated trading systems like Algo trading software. However, phone calling orders have become an outdated process, today most people place orders through their mobile apps or tablets with quick access from anywhere.

The order is categorised into various types based on conditions like price, time or certain restrictions. The different types of orders allow the traders to place the order by choosing from various types as per their trading style and risk management.

Also Read: How to Manage or Do Risk Management in Options Trading

Types of Orders in the Stock Market:-

There are usually three types of orders — market order, limit order, and stop loss order- that are used in trading in the financial market. However, there are more types of orders categorised for the traders to provide them flexibility while placing the orders based on the price, quantity, affordability, risk-taking capability, profitability expectation and investment exposure with certain conditions for better execution and improve their trading journey.

Market Order

This is the most common type of order used by most traders or investors while placing the order. The market order is an order to buy or sell an underlying security at the current market price. Usually, these types of orders are executed as soon as it is placed at the latest price at which rate the underlying security is trading.

However, while placing the order it is not necessary for your order will be executed on the latest price you see. The price could be changed as before you place the order, someone else might place the order at the same price, and then it will executed before you. In a highly volatile market, the price keeps changing at a very fast speed with quick executions.

If you want to buy or sell immediately, then a market-type order is best suitable for you. One of the best advantages of market order is it is executed at a very fast speed and your order will be definitely executed as soon as it is laced in the system. However, in market orders, the price will remain the same only when the bid/ask price is correct at the last traded price.

Limit Order

Limit order type is the order placed with a certain limit on price, which means you can place the limit order with a specific price or rate at which if the trading price of the underlying security trades, then only your order will be executed. When the trading price does not reach your limit price, your order will be not executed as you set the minimum or maximum price you set at which you are willing to buy or sell.

You can use the limit order to buy or sell the underlying security at a specific price, and on the other side, buyers have to pay a specific price to purchase the particular security. If the price of the underlying security does not reach your limit price, your order will remain pending until it is executed, expires or manually cancel or modify the limit price.

A buy limit order represents the buyer is not ready to buy a particular underlying security beyond the limit price set by the buyer. While, in a sell limit order, you specify the limit price below that you are not ready to sell your underlying security. And in both buyers and sellers, unless the price of buyer and seller do not match the price, your order is cancelled.

Stop-loss Order

Apart from the above two most common types of orders, stop loss is another important type of order. The stop-loss type orders are placed to limit the losses of the traders usinga limit price at which the trade position exits if the underlying security does not move expected direction. Stop loss-based orders are one of the best tools for risk management in trading.

Also Read: How to Set Target Price and Stop Loss in Intraday Trading

Stop-loss orders mean you have to set the stop-loss trigger point at which your trade position exits to stop your losses from further movement in the underlying security. If you have placed the order for a long position you have to set the stop loss somewhere below the buying price.

If you entered into a short position, the stop loss point would be somewhere above the selling price. And when underlying security moves against your direction the stop loss order will automatically executed to exit from your trade position. This will help you from major losses and help to trade cautiously in a highly volatile market conditions.

Also Read: What is Short Selling & How Does it Work: Is it Good or Bad