Become a pro-trader by knowing these order types

Apr 03, 2020 13:45 PM 2641 views

The capital or financial markets enable all individuals to purchase shares in a company, however, not many people are aware of the different types of orders they can place. Today’s article will focus on the different types of orders available to all our clients on the IIFL Markets app along with examples. Moreover, different order types are basically a set of instructions that are being utilized while buying or selling a security and each order is unique, having a different role to perform. Below we will explain how you can place different types of orders on the IIFL Markets mobile application. 

Delivery vs Intraday:

Once you have made a decision concerning the stock you would like to purchase, you have to select the ‘order for’. ‘Order for’ (screenshot) simply means the time limit you would like to hold this particular order for, highlighted in the screenshot above. When an individual selects a ‘DELIVERY’ trade they are only executing one side of the transaction on that particular day. In other words, they can hold onto this trade for more than a day depending on their investment plan, similar to conventional investments. 
On the other hand, if an individual selects the ‘INTRADAY’ option they have opted to execute both the legs on the transaction (buy & sell) on the same day. For example: If an investor has executed an intraday order and purchased 100 shares of company XYZ, the shares that have been purchased would also have to be sold on the same day before the market closes. The same goes for intraday sell orders. Therefore selecting the ‘order for’ or timeline of the order is extremely important and solely depends on the investor's outlook on the market. 

Limit Order vs Market Order:

 In the quick trade section, there are two types of orders our clients can place (1) Limit (2) Market. A ‘LIMIT’ order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. To illustrate, if an investor wants to invest in company ABC and wants to purchase a singular stock for ₹10. They can simply place a limit order for ₹10 and the order will only get executed when the price of ABC stock reaches ₹10 or lower. 
Consequently, a ‘MARKET’ is an order to buy or sell a security instantly. This type of order guarantees that the order will be executed but does not guarantee the price it will get executed at. Usually, a market order will get executed near the current bid or ask price, however, it is important for investors to remember that the last traded price is not necessarily the price at which the order will be executed. 

While placing a buy ‘MARKET’ order you first have to enter a quantity. In this case, the investor has selected a quantity of 800 shares and the price remains 0 due to constant market fluctuations. Upon clicking on the ‘buy’ button at the bottom of the screen the order will get executed. The first 600 shares will be bought at ₹80 (table above) at the current ask price and the remaining 200 shares will be purchased at ₹85 which is the next ask price. This will make the average buy price ₹81.25. 

Stop Loss Order:

A stop-loss order is usually placed to minimize losses on a position. When an order has been placed to buy or sell a stock the order is only executed when the stock reaches or crosses a specified price point also known as the ‘SL Trigger Price’. 
For example, let us assume you own 50 shares of company FKJ at ₹10 per share. You anticipate the price to increase however you do not want to incur a loss of more than ₹2 per share. Therefore you place a stop-loss order where the SL Trigger Price is ₹10 (as the order is already executed) and the SL price is ₹8. Once the price reached ₹8 IIFL will automatically place an order to sell your shares at the price determined by you. Your shares will be sold at the best available price between ₹10 & ₹8. 
Note: To place an SL order you have to click on the ADVANCED section highlighted in the screenshot above. 

Cover Order vs Bracket Order:

To put it simply, a Cover Order (CO) is a combination of a market order and a stop-loss order. In other words, you can buy or sell a stock as a market order and additionally have the ability to specify an ‘SL Trigger Price’ and ‘SL Price’ to reduce your exposure to market risks. 
Furthermore, a Bracket Order (BO) is an advanced intraday three-legged order that is accompanied by a compulsory Target and Stop Loss Order. 
 
Order 1: This can be either a Limit or a Market Order. All you have to do is enter the Price you would like to purchase a particular stock. If you would like to place a market order then keep the price as 0. 
 
Order 2: This is the stop-loss leg where you need to define the SL Trigger Price and SL Price. You can also utilize a trailing stop loss. A trailing stop loss is basically a stop loss that keeps on changing depending on price movement. To illustrate, if you have bought ABC stock at ₹100 and the SL Trigger Price is set to ₹90, If the stock price rises to ₹105 the SL Trigger Price will also rise by ₹5 to ₹95. Therefore a trailing stop loss always maintains the same price difference. 
 
Order 3: This part of the Bracket Order determines the profit point of the position. For example, if you have set a Target Price as ₹115, the sell profit order will be executed as soon as the price reaches that point.
 
This type of order is usually used by traders when they are using a high margin helping them stay in complete control of the risks involved. Click here to find a list of scrips that support BO/CO orders. 

Validity:

Different order types have different validity periods which are directly regulated from the RBI. Below are the various periods of validity.

Click here to download our India’s best trading app and place a BUY or SELL order now! 

Tags: #Finance

May I Help You

Submit