In the previous ‘getting started’ article of the series I introduced the main actors of the scene. In this article, I will be explaining the various transaction types to use. The market orders can be viewed in 2 groups. The Basic Orders and Trade Orders are the 2 groups.
When we place the transaction. The transaction gets transferred to the exchange by the broker. The exchange then executes the transaction. Every transaction has its unique Transaction ID. Some transactions don’t get fulfilled immediately, such can be edited if you make any mistakes.
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The different types of Orders
When you are getting started its important to have proper knowledge of order types. Buying and selling of stocks can happen only if you know order types. Hence the basic orders are listed below.
- Market Order
- Limit Order
- Stop Loss Order
- Bracket Order
- Cover Order
The top 3 can be called as basic orders. The last 2 orders are combination orders which gets converted into 2-3 basic orders while hitting the exchange.
The orders are also further classified based on when you placed the transactions. The After Market Orders are placed between 15:45(3:45 PM) to 08:57 i.e. after the session has closed. The Pre-Market orders are placed between 09:00 to 09:08 i.e. the first 8 minutes of Pre-Open Session. The Post Market orders are placed between 15:40 to 16:00 (3:40 PM to 4:00 PM) during the post market trading session.
The Market Order is the fastest one to get fulfilled. In case of buy transaction, the market order gets executed against lowest ask price prevailing. If you place a buy market order for INFY. The lowest ask price (price at which a seller is willing to sell) at that moment was Rs. 1300.25, the order gets fulfilled against that asking price. In case of sale transaction, the market order gets executed against highest bid price prevailing. If you place a sell market order for INFY. The highest bid price(price at which a buyer is willing to buy) at that moment was Rs 1301.35, the order gets fulfilled against that bid price.
If the quantity is large the order gets fulfilled at multiple price points. Suppose for example you place an buy market order for TCS with the quantity of 100 shares. The lowest ask price(be it Rs. 2045.35) has the available quantity of only 60. The 2nd lowest ask price (be it Rs. 2046.00) has an available quantity of 100. The order gets fulfilled by buying 60 shares at the price of 2045.35 and remaining 40 are bought at price of Rs. 2046.00 .
In essence market order is like an instruction to exchange to fulfill the order against any price prevailing.
If the market order is an instruction to fulfil the order at any cost, the limit order is instruction fulfil at the specified price or better ones only. If the prevailing prices are more than the limit price(in the case of buy-side only) specified then the order is kept open for future execution. In
When you are buying always place a limit order. A market order is better in emergency situations.Me
The market and limit order are mainstream orders for buying and selling of stocks by investors. If you are getting started in investing, then knowing these 2 is more than sufficient. The next order type is for traders who are getting started.
Stop Loss Order
The Stop Loss is insurance. This order gets activates only when LTP(Last Traded Price) breaches the trigger price. In case of a sell order, LTP lesser than trigger price activates it. In case of a buy order, LTP greater than trigger price activates it. Suppose you are shorting MARICO, and you have placed a sell order at Rs. 340.30. You don’t want to lose this bet then you can place Stop Loss Market order at Rs.341.00. If LTP breaches this, the buying happens immediately and you are saved from larger losses. The stop loss has 2 variants of SL-M and SL-L. SL-M converts into a market order when trigger price is breached. Another variant of SL-L morphs into limit order.
The next orders of Bracket and Cover have Stop Loss feature integrated in them.
Whenever you trade, you set up 3 components of Strike Price, Target Price and Stop Loss Price. The difference between Strike and Target prices is your trade profit. The Stop Loss price is placed at support level determined based on charts.
The bracketing order makes it easy to set up the trade. it asks the above-mentioned targets and converts them into 3 orders and posts them to exchange. The bracket order also auto cancels the target order if stop loss is hit, and vice versa too. This is available for MIS intraday trades.
If you are uncomfortable in setting up trade with fixed target price and want to have open ended profit potential, then next order is for you.
The Cover Order is for covering the downside. This order takes only strike price and the stop loss price. Because of that, the trading position needs to be squared off either at the end of the day or by manually closing it. If you are sure about the bull run or bear raid in the market (these make it difficult to decide on target price), you can use the cover order to set up the trade.
The Intraday Trade and Multi-day Investment Flags
Whenever you are buying or selling, you need to give additional instructions. Its about whether the stocks to be held in brokers pool for trade or should it be sent to demat account for selling at later date.
- MIS flag – Margin Intraday Square off
- CNC flag – Cash N Carry
The activation of MIS flag gives instruction to broker that you are opening the trading position to be either squared off at the end of the day by him or by you during any time of the day (before closing of the session). The bracket and cover orders are used with this flag enabled.
The CNC flag is instruction for sending stocks to demat account(in case of buying) and selling of stocks from demat. As an investor, you need to work only with this flag. BTST(Buy Today Sell Tomorrow) trades too enable this flag.
This article covered the basics of various order types. In forthcoming part you can learn about various charges, the account features, and other insights.