What are various types of orders?
Stock trading is a vast field. In order to be a successful stock trader it is important that you keep yourself aware of the various important terminologies related to the stock market trading. One such thing that you need to understand before you start trading in stock market is learning about market orders. Having knowledge about what a market order is, how is it placed, and what are the different types of stock market orders is essential to start with stock trading.
Whether you wish to trade in stock market, derivatives or commodities market, or in currency market, it is important for you to understand the different types of orders you can place in these segments before placing an order. Having complete knowledge about different order keeps you safe while dealing in the market.
No matter what type of the below-mentioned order you wish to place, the first and the foremost requirement is to have a Demat and a Trading Account. A Demat Account, as we all know, is the account that holds the securities in dematerialized format. A Trading Account on the other hand is the one that facilitates buying and selling of stocks in the stock market on different stock exchanges.
What is an order?
An order is an agreement to buy or to sell on any trading venue like stock market, commodity market, currency market, or derivatives market. There are two main types of orders when talking of the Indian stock market, including a market order, and a limit order.
Market Order: A market order is an order to buy or sell the securities immediately on the current market price. It is the most basic type of stock market order. A market order goes to the top of all the other orders and is executed immediately as it involves buying and selling at the correct market price of the security. The pending orders that are left from being executed for the day are arranged on the basis of the price of the order. In such orders the one with the highest price rests at the top of the column. The pending order with the lowest price sits at the bottom of the price column. As and when the orders are received they are arranged on the basis of their price. When the market orders are placed to buy a stock, they are placed at the highest market price. On the contrary a sell market order is placed or received at the lowest market price for the stocks.
The investors need to remember the fact that the market order will not always be executed at the last-traded price. These orders are popular among people who want to invest in the market without any delay and hence are executed ASAP.
Limit Orders: Limit orders are the orders to buy or sell the security at a specific price or at a better price. They are also referred to as pending orders in some cases. They allow the investors to buy and sell a security at a certain price in future. These types of orders are used to place a trade when the price of the stock reaches a specific level. For instance, Mr. A wants to buy a stock at Rs.50 or lower. He can submit a limit order for the mentioned amount which will be executed only if the price of the stock is Rs.50 or less.
Limit Orders are of four types:
Buy Limit Order: It is an order to buy a security at a price mentioned or below the mentioned price. It is essential to place the limit orders on the correct side of the market to ensure that they fulfill the task of improving the order.
Sell Limit Order: It is an order to sell a security at a price or above the specified price. The order must be placed at or above the current market price to ensure the improvement of the order.
Buy Stop: This order becomes active only when the specified price level has been attained. It is an order to buy a security at a price above the current price. They are placed above the market price. Once the stop level has been attained by the stock the order will be immediately converted to a market or a limit order.
Sell Stop: It is an order to sell the security at a price that is below the current market price asked for that security. These orders are placed below the market price. A sell stop order becomes active only when the specific price for the stock or security has been achieved.
What are MIS orders?
MIS orders or Margin Intraday Square orders are the intraday orders that are required to be squared off within the same trading day. If these orders are not squared off during the same day or are converted into some other order, then the RMS system automatically squares off these orders before the market closes for the day. The auto square off for equity, futures and options, and currency segment in MIS orders is 15 minutes before the market closes. The square off for commodity derivative segment, on the other hand, is 30 minutes before the market closes. These orders are suitable for investors that strictly want to involve in intraday trading as they need not worry about the squaring off of their trade. If the investors want then these orders can be easily converted to delivery or carry forward trade through the position conversion window.
What is NRML Order?
NRML is the abbreviation for Normal Margin. These are the orders that are used to carry forward trades while trading in the derivatives segment. Under these orders, the investors are required to pay approx. 20% margin in order to buy a scrip from the broker. Also, the exchange allows the clients to pay the broker remaining 80% without charging any interest in 2 additional days. In order to place a NRML order the investors are required to maintain the minimum required margin even if they need to infuse additional money for the same.
What is CNC order?
CNC or Cash N Carry is a non-intraday product offered by stockbroker that is used in the equity segment of the BSE and NSE. These orders are used for buying and selling shares for equity delivery. The shares purchased under the CNC order are transferred to the Demat account of the investors after T+2 days. The shares sold by the investors under the CNC order are transferred from the Demat Account in order to fulfill the trade obligation on the exchange.
For CNC order the investors do not get any leverage or in some case they might receive a leverage of 1x. Since the investors placing the order have paid the entire amount for the purchase of the shares there is no RMS square off taking place for these orders. The shares that are purchased would be sold immediately on the instance of the trader.
These orders can also be placed for intraday trade and the brokerage is charged according to the intraday trade.
What is a Cover Order?
A cover order is a kind of a market order that is placed with the stop loss option. Cover orders are market orders that are essentially placed with a stop loss order in a specified range and as a pre-defined order by the system that cannot be cancelled at the discretion of the trader. These orders are less risky as they are accompanied with a stop loss order. It further reduces the margin requirement as the stop loss has been already put automatically. It gives the traders more leverage for intraday trading.
What is a Bracket Order?
A bracket order is the one that allows the traders to enter a new position along with the exit and stop loss order. Once the main order is executed the system automatically places two new orders, the profit taking and the stop loss order. When one of these two orders gets executed then the remaining order is automatically cancelled by the system. These are essentially algo orders and can be used only for intraday trades by the traders. All the bracket orders are automatically squared off at 3.18 PM before the market closes for the day. These orders are not allowed on BSE stocks, currency options, stock options, and MCX trading.
What is a Trailing Stop Loss and Limit Order?
A trailing stop loss order is the order that is submitted with a stop criteria leading to a dynamic or trailing activation price. The parameter that is used in these orders is the percentage change or an absolute rise and fall in the asset price. They are entered in order to protect the profits of the traders and to reduce their losses at the same time.
A trailing stop limit order is the one where the concept of trailing stop limit order continues. These orders not only minimize the chances of losses for a trader but also protect the future scope of making gains from stock market trading.
What are GTT Orders?
GTT orders also known as Good Till Triggered Orders are the orders that allow the traders to set a trigger price for any particular stock. When the trigger price in such orders is met a limit order is placed as per the selected price on the exchange. These triggers can be set for entering or leaving the market and can be placed by traders for all their stock holdings. These orders are fulfilled only if there are sufficient funds available in case of buy order.
What is Valid Till Date(VTD) Or Validity of Order?
The validity of order in stock market is of three types:
- IOC Order: It allows the users to buy and sell securities as soon as the order has been released in the system. If the order is not released on time then it is automatically cancelled by the system. Even in case of a partial match the order is released by the system.
- DAY Order: A DAY Order, as the name suggests, is valid only till the end of the day. This means, that if the order remains pending throughout the trading hours then it is automatically cancelled before the market closes.
- Valid Till Date: As the name suggests, these order are valid only till the date that has been mentioned by the trader. The maximum number of days however is 45 in this case. Only cash orders can be placed as VTD orders.
Order Matching Rules
The best buy order is matched with the best sell order on the stock exchange. Even if the orders match partially and hence resulting in multiple trades. In order to match the orders, the best buy order is the one that has the highest price and the best sell order is the one that has the lowest price. Members of the exchange can pro actively enter the orders in the system. The orders are displayed in the system till full quantity is matched by one or more counter orders.
Conclusion
An order is an agreement to buy or to sell on any trading venue like stock market, commodity market, currency market, or derivatives market. There are various types of orders in the stock market as mentioned above for your reference. All the orders mentioned above are different from one another based on various aspects like the stop loss feature, intraday orders, orders to maximize gains, orders to minimize losses, orders with Automatic Square off, and orders with automatic cancellation. A smart investor is the one who understands the importance of all these orders and knows very well that which order is to be placed when. The orders play an important role as the leverage and margin requirements are also dependent on the type of order you are placing. Hence, before placing an order the trader needs to be double sure about their position in the market and the availability of funds in their account.