Many people wants to trade in the Market and earn some money but they don’t know how to Enter into the market, how to place Stock Market Orders while trading.
So, In this article we are going to learn all about Stock Market Order Types. Here we started,
What are Stock Market Order Types?
When you want to earn money from Stock Market you have to decide and tell your broker your wish in a very specific manner.
The message you tell / send him through Written Message, Recorded voice call or With Software System is called an Order. Those software systems are like Upstox, NEST, FoxTrader, etc.
Softwares may be different, Orders might be highly complex but there is basic system every order has to be followed.
Those basic components are as follows,
- Security / Script you choose to Trade
- Price at which you wanted to Trade
- Action of Trade i.e. Buy or Sell
- How much duration you are going to place the position that is Intra-day or Delivery
All these information will be given in this article.
How Ordering System Works?
This is the most important to understand how actually this system does its work.
There are orders having two actions that is Buy Order and another is Sell Order.
Buy order also known as Bid Order and Buy Price and Quantity is known as Bid Price and Bid Quantity respectively.
Similarly for Sell Order. Sell order is known as Ask Order.
The order is traveled from Three Participants in the Stock Market, that is Trader, Broker and Exchange.
Let’s See their workings in Detail.
Trader who decides what action to be taken on what company at what price and Sends it to the Broker. Simply you are the one who is Trader who send orders to the market through Broker.
Broker is the Member of Stock Exchange who is the Intermediate person between Trader and Exchange.
Broker just send those orders from Trader to the Exchange. He is the medium of transferring orders. But he is not the one who execute it successfully. He just transfers all the orders to the exchange.
Exchange is the one who actually execute the trades.
It accepts orders from Stock Broker and then try to match it with all other orders. When it gets the exact match then trade gets successful.
The match is decided from following things.
- Action of Trade – Buy (Bid) order can executed if there is Sell (ask) order is available from other side.
- Quantity – When someone wants to buy 100 Shares and there are only 75 shares available to sell at the given price then remaining 25 shares can not be traded
- Price – One wants to buy shares at Rs. 100 but seller wanted to sell at 102 then both orders remains non executed because price does not match with each other.
- Script – Company, Security or Commodity on which order is going to place.
So, Exchange plays a very important role in Trading.
Exchange is responsible for Taking the trades, Matching it with correct order and execute the trade. There are million numbers of trades can be executed within a fraction of second by the Exchange.
But when any of the order does not match with any other order then Trade does not executed instead it is waiting to get its order match. It remains pending till it gets cancelled by the Trader or the Broker.
Stock Market Order Types used for Trading
Besides Buy and Sell orders there are several other types of Orders. Which can be used to trade.
Some of them are simple and some are complex. You have to choose which is used for what kind of trade position.
Here you will get to know about all orders in a very simplified manner.
There are mainly two types of positions. One is Delivery (CNC – Cash aNd Carry) and Another is Intra-day (MIS – Margin Intra-day Square-off).
Delivery (CNC) Order
The Delivery or CNC (Cash N Carry) product is a non-intra-day product used in the Equity Segment of BSE & NSE. It is used for buying or selling shares for delivery. The shares purchased using the Delivery / CNC option. That would be transferred to your demat account after T + 2 (2 Days after day Traded) days and shares sold using the Delivery / CNC option would be transferred from your demat account to fulfil your sale with the exchanges. For example, if one wishes to buy shares of a company and sell it after a few days, one should use the Delivery / CNC as the product type.
Delivery Order Types
By order Complexity, there are two types of Orders available for Delivery Trades i.e. Simple and AMO. That is explained below.
Simple Delivery Order has four order types.
- MARKET – Buys at latest Ask Price or Sells at a latest Bid Price whatever is available.
- LIMIT – A buy limit order can only be executed at the limit or lower price OR Sell Limit Order can be executed at the limit or higher price
- SL LMT (Stop-Loss Limit) – Used to Protect it from loss. Whenever someone trades at a price which equals to trigger price then the order gets placed in the exchange
- SL MKT (Stop-Loss Market) – It is similar to LS LMT but in this order when someone trades at a price which is equal to trigger price then instantly order gets executed.
AMO represents (After Market Order). This order can be placed even the market is closed. Because as the name suggests AMO are accepted after closing the market for taking trades in the next trading session.
Until then all those orders are lies within the server of Broker. When the market opens up in the next trading day then it gets transferred from Broker’s server to the Exchange.
Like Simple Order there are also four types of orders that is,
- SL LMT (Stop-Loss Limit)
- SL MKT (Stop-Loss Market)
Intra-day (MIS) Order
Intra-day / MIS (Margin Intra-day Square-off) – As the name suggests, Intra-day / MIS orders are intra-day orders and needs to be squared off during the same trading day. If the order is neither squared off by the user nor converted into other order type i.e. Delivery, the Broker’s system will automatically square off the order a few minutes before the market close. The auto square off for Equity, F&O & Currency happens approx 15 minutes before the market close and for the Commodity Derivatives Segment the square off happens approx 30 minutes before the market close.
This timing is varies from Broker to Broker
Thus, if a trader wants to strictly trade in intra-day he can do so by using the Intra-day / MIS product type. He need not even worry about squaring off the trade as the trades will get auto squared off. Also, if required the Intra-day / MIS product type can be converted into delivery or carry forward trades through position conversion window.
Benefits of choosing Intra-day Orders
- High Margin / Leverage – One can place trades worth Rs. 1 lac using just Rs. 5 thousand. That means, about 20 times of Margin.
- No overnight Risk – In intra-day trading one can avoid the overnight risk which delivery traders suffers when price opens up with a high price gap.
- Daily Income – There is a daily income involved in this type of trading. One can make money daily by staying at home or doing salaried job by trading daily in the Stock Market. While in the case of long-term trade these are not possible and they rely on long term income. This one is for those who want to earn daily and make it a primary job.
Intra-day Order Types
As we previously discussed Intra-day Positions are limited for the day itself. So, unlike delivery orders, Intra-day orders no more remains open till the last moment of closing the market.
Intra-day positions and open orders gets closed 15 minutes (approx) earlier than market closing.
Simple and AMO
Like Delivery orders, Intra-day orders also accept these types of orders for placing trades.
But these orders have margin facility that delivery orders can not enjoy.
There are another two types of orders available for Intra-day trading. That are CO and BO / OCO
CO (Cover Order)
A Cover Order is a special type of order through which the user can take an intra-day position and take advantage of extra exposure margin while being protected through a stop loss order.
The system will place two orders simultaneously: a market or limit order and a corresponding stop loss market order which would only get triggered at the specified stop loss trigger price. If the trigger price is hit, the stop loss order gets executed as a market order. The combination of both these orders being placed simultaneously is known as a Cover Order. Cover Orders help you limit any potential losses that could be incurred on a position.
Benefits of Cover Orders
Limited Risk and Maximum Profit: Due to the inherent way Cover Orders work, they help traders minimize downside risks and provide better control over risk management. Since there is always a stop loss corresponding to each trade, Cover Orders can help users trade in a more disciplined manner. Users can take advantage of the margin benefits as well, using the Cover Order facility to leverage their positions greatly while enjoying the benefits of a stop loss to protect them from downside risk. Overall, Cover Orders reduce downside risk but do not impose any limits on their returns.
How Cover Orders Work
A Cover Order is basically a two-legged order. The client needs to place a buy/sell order with compulsory corresponding stop loss order in the opposite direction.
- The first entry order can be a market or a limit order.
- The corresponding stop loss order will sit in the order book as a Stop-Loss trigger pending order; once the trigger price hits the stop loss limit price, it gets triggered as a market order.
- The trigger price range will be defined daily and the client must place the stop-loss order within the specified range. For example, suppose Reliance Industries is trading at Rs. 900 and the range is specified as 10%. In this case, the client can specify the Stop Loss order between the price range of Rs. 810 to Rs. 990 as the trigger price.
- Once the Cover Order has been placed and the first leg has been traded, the client will not have the ability to cancel the Cover Order. The client can only exit the current one-sided position.
- In the event that the first order has not been traded, you can cancel the Cover Order.
- The stop-loss order can be modified within the stipulated price range. After the order has been modified, the margin will be recalculated.
Reference : What is Cover Order?
BO (Bracket Order) / OCO (One-Cancels-the-Other)
A bracket order can be used to limit your loss and lock in a profit by “bracketing” an order with two opposite-side orders. Through this order type, you can place three orders at one go:
- The Position Initiation Order (your buy or sell order)
- Square Off Order (also known as a Take Profit Order)
- Stop Loss Order
The Position initiation order can only be a Limit order. Once that order gets filled by the market, our system will automatically send two orders — a Square Off Order (which will also be a Limit order) and the Stop Loss order (this will be Stop Loss Market order) based on the parameters set by you. When any of the two orders get traded, the other one will automatically get cancelled by the system. Because of this nature, bracket orders also are termed “One Cancels Other” or OCO.
Another neat feature of Bracket Orders is that you can make your Stop Loss order a Trailing Stop Loss (TSL) order. What that means is that if the stock moves in a profitable direction (up if you placed a buy order, down if you placed a sell order), the stop loss will automatically adjust itself to your benefit! Say, you bought a stock at Rs. 100 with a Trailing Stop Loss at Rs. 80 and a Square Off at Rs. 120. If the stock moves to Rs. 110, then the Trailing Stop Loss will move up to Rs. 90 and your Square Off will stay at Rs. 120!
Both the Square Off Order The Square Off Order Price and Stop Loss Trigger Price are set using the following parameters. Before placing a Bracket Order, you need to tell the system, how to adjust the trailing stop loss as the price moves up and down. Here are the possible ways you can tell the system to adjust the Trailing Stop Loss:
- LTP plus Absolute: the system will take the Last Traded Price for trades done for the Order and add the absolute price as desired.
- LTP plus Ticks: the system will take the Last Trade Price for the trades done for the Order and add the number of ticks mentioned while placing the order.
- ATP plus Absolute: the system will take the Average Traded Price for trades done for the Order and add the absolute price as desired.
- ATP plus Ticks: The system will take the Average Traded Price for trades done for the order and add the number of ticks mentioned while placing the order.
- Trailing Stop Loss ticks: Trailing tick in Bracket Order is defaulted to a minimum of 20 ticks, that in absolute terms for the NSE exchange comes to 1 rupees (20 ticks*0.05 Rs =1 Rs), even when the user has given less than 20 ticks the system will consider 20 ticks as trailing stop loss by default.
Difference between Absolute and Tick for Bracket Order
When configuring a bracket order, the system lets you specify the Stop Loss and the Take Profit order in either absolute measures or tick measures. What does this mean?
If you select absolute and enter a value of 5, it stands for Rs. 5. A value of 5 in “Absolute” mode for Square Off orders means that the Square Off order will be placed at Rs. 5 of the traded price. If your order got traded at the market at Rs. 101, your square off order will be placed at Rs. 106.
Ticks are just a different way of measuring rupee value. One tick is equal to 5 paise (1 tick = .05 rupee). If you select tick and enter a value of 40 ticks, it stands for Rs. 2 (40 ticks * 0.05 rupee per tick).
Reference : Bracket Orders (or OCO – One Cancels Other)
FAQ’s on Different Orders
What is the difference between Limit and Market Order?
When an investor places an order to buy or sell a stock, there are two fundamental execution options: place the order “at market” or “at limit.” Market orders are transactions meant to execute as quickly as possible at the present or market price. Conversely, a limit order sets the maximum or minimum price at which you are willing to buy or sell.
Buying stock is a bit like buying a car. With a car, you can pay the dealer’s sticker price and get the car. Or you can negotiate a price and refuse to finalize the deal unless the dealer meets your price. The stock market works in a similar way.
A market order deals with the execution of the order; the price of the security is secondary to the speed of completing the trade. Limit orders deal primarily with the price; if the security’s value is currently resting outside of the parameters set in the limit order, the transaction does not occur.
If delivery order is placed then till how much days it is open in the Market?
Though it is an Delivery order it is valid for the day only. The difference between Intra-day Order and Delivery Order is as below.
- Margin – Intra-day Orders gets some margin to place trades whereas Delivery orders does not get any margin.
- Auto Cancellation – Intra-day Positions are not for carry forward so valid for the single day. Hence unlike delivery orders, intra-day orders does not remain until the market gets closed. They are automatically gets cancelled 15 minutes early before the market gets closed.
Hope you cleared all the points in this article. Please comment your views and opinions in the comments down below.