Stock Market Order Types

Stock Market Order Types

In the stock market, an order type refers to the manner by which your broker executes your buy/sell order. Market orders and limit orders are the two most prevalent order types. For example, you may choose to buy a stock instantly at the current market price (market order) or set a price for your order to be executed (limit order).

Other advance order types include Cover Order, Bracket Order, and Good-till Cancelled Order.

From the several types of stock market orders listed below, you may select the one that best meets your trading objectives.

Order Type in Share Market

Here are the different types of orders in the share market:

1. Market Order

A Market Order is a request to purchase or sell shares instantly at the current market price. It ensures that the order will be completed (depending on the availability of buyers and sellers) but does not guarantee an exact price.

A market order is often executed at or around the current bid (sell order) or ask (buy order) price. It is completed at the best available price, not necessarily the last traded price. Market orders are useful if you need to enter or exit a deal fast. For example, when the price of a stock fluctuates rapidly.

For example, a market order can be placed by an investor to purchase 8000 shares of XYZ stock. The order will be fulfilled right away at the best price on the market. It should be noted that the investor can wind up paying Rs 100 for 3000 shares, Rs 102 for 500 shares, and Rs 103 for the remaining 1500 shares.

2. Limit Order

With a limit order, a trader indicates the precise price at which he is ready to purchase or sell shares. Orders will only be performed at the specified limit price or above. There is no assurance that a limit order will be executed.

An order to purchase stocks at the designated limit price or less is known as a buy-limit order. An order to sell equities at the designated limit price or above is known as a sell limit order.

An investor can put a limit order for the maximum amount, say, Rs 3000, if he wishes to buy shares of XYZ stock. Only when the price of XYZ stock hits Rs 3000 or less will the order be executed.

3. Stop Loss Order (SL Order)

A stop-loss order is a purchase or sell order that is executed when the stock price hits the stated trigger price/stop price.

A stop-loss order is used to limit losses due to stock price movements. An investor can limit his or her losses by leaving a trade when the stock price hits the designated stop-loss level. Buy stop-loss orders are set above the market price. Sell stop-loss orders are placed below the current market price.

For example, an investor paid Rs 1000 for shares of XYZ stock. He expects the price to grow to Rs 1050 so that he can make a profit. However, it is probable that the stock price will drop. In this case, the investor may decide on a loss appetite of Rs 50 and place a Sell stop-loss order at Rs 950. When the price of XYZ stock hits Rs 950, the stop-loss order is activated. His shares are immediately sold at Rs 950, limiting his loss to Rs 50.

4. After-Market Order

An order placed after market hours, on a day when markets are closed, is known as an after-market order. India's stock exchanges are open for business from 9:15 a.m. to 3:30 p.m. 

If you are an investor who wants to trade but is busy during market hours, an after-market order might be quite helpful.  

5. Cover Order (CO)

A cover order is an advance order for intraday trading that reduces the danger of a total loss. In a cover order, two separate orders are placed concurrently. It comprises of a market order plus a mandatory stop-loss order in a predetermined range. Once the market order is executed, a stop-loss order is placed. An investor cannot cancel this Stop-Loss Order. The Stop-Loss order is automatically cancelled when the transaction closes the intraday position.

If XYZ stock is trading at Rs 200, an investor can place a market order to purchase at Rs 200 and a stop-loss order at Rs 195. If the share price of XYZ climbs to Rs 210, the investor can record a profit and quit the investment. If the share price goes below Rs 195, the stop-loss order will be triggered. The shares would be immediately sold for Rs 195. 

6. Good till Cancelled (GTC) Order

A GTC order allows a trader to place a buy/sell order that stays active until the period of time selected or cancels the order. Here, a trader can also provide an expiry date for the order's validity. Only a few stock brokers support GTC orders.

If you wants to  purchase a script at Rs 1000 in next 100 days then you can create a GTC order with purchase price Rs 1000 with a quantity and select close date 100 days. The order will stay active until it is completed. Before execution, you can cancel the order at any moment. 

7. Immediate or Cancelled Order (IOC)

An order placed by a trader with the option to "cancel" or "execute immediately" is either cancelled or executed right away. Time is critical in an IOC order. For traders who don't have time to keep an eye on the markets, it is quite helpful.

An IOC order can be placed as a market or limit order. An IOC order may occasionally be partially fulfilled.

An investor may, for example, place an IOC order to buy 5000 shares of XYZ stock. The buy order for 3500 shares is completed and the buy order for 1500 shares is cancelled if there are only 3500 shares available for purchase at that time on the market. 

8. Order for Trailing Stop Loss 

A stop-loss order and a trailing stop-loss order are comparable, but the stop price is dynamic. If the stock price advances in your favour, the stop-loss price tracks the movement of the stock price in the market. It gives the investor the ability to control his loss without limiting his potential gain. An investor must specify both a stop price and a following stop price when putting in a trailing stop-loss order. 

For example, an investor paid Rs 1000 for shares of XYZ stock. With a trailing stop-loss of Rs 5, the investor may place a sell stop-loss order at Rs 950. 

9. Bracket Order (BO) - H3

A complex trading technique called a bracket order automates several trading steps into a single order, which simplifies the trading process. The first Buy/Sell Order, the Target Order, and the Stop-Loss Order are the three separate orders in this method. The system automatically sets the appropriate Target and Stop-Loss orders in response to an investor's Buy/Sell order.

Let's take XYZ stock, which is trading at Rs 100, as an example. An investor may put in a bracket order to buy it at Rs 100, with a stop-loss order set at Rs 95 and a predetermined target order to sell it at Rs 105. The algorithm automatically initiates the Stop-Loss Order at Rs 95 to prevent further losses and the Target Order to sell at the designated profit level of Rs 105 after executing the initial Buy/Sell order.

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Table of Content

  1. Order Type in Share Market
  2. Difference Between Market Order and Limit Order

Difference Between Market Order and Limit Order

Here are the major differences between the market order and limit order listed in the below table:

AspectMarket OrderLimit Order
Order ExecutionFulfilled immediately at current market priceExecuted at specified or better price
Quantity & Price RequiredOnly quantity requiredQuantity and price required
Influence on PriceMinimal influenceGreater influence
Risk of Price FluctuationsAssumes risk of price fluctuationsControlled risk
Execution GuaranteeLikely to be filled in fullNot guaranteed to be executed
Price at ExecutionCurrent market priceSpecified price
PrioritisationEmphasises prompt fulfilmentEmphasises specific price achievement

Trade executions can be impacted by several circumstances. Traders can set additional restrictions that impact an order's time in effect, volume, or price limits in addition to employing other order types. Learn about the several methods you may manage your order before you place your transaction. Doing this will increase your chances of getting the desired result.

FAQs on Stock Market Order Types

Generally, market orders cannot be cancelled once placed, as they execute immediately at the prevailing market price.

Trailing stop orders are useful for securing profits by adjusting the stop price as the stock's value fluctuates, protecting against potential losses.

A buy stop order triggers a market order when the stock hits a specific price, while a buy limit order is executed at or below a set price.

Yes, with extended-hours trading, some brokerages allow placing certain order types beyond regular market hours, but execution may vary.

Order types influence timing, price, and execution certainty, shaping strategies to capitalize on market movements or protect against losses.