Placing an order in the financial market exchange is like an instruction to buy or sell the underlying asset on the stock market or bond or commodity market. These instructions can be sent through a broker who acts as an intermediary between the investor and the exchange.
These orders may be in various forms as some get executed immediately while some orders are executed only after satisfying certain conditions. Popular types of orders are discussed below:
- Market Order: The most commonly used order for buying and selling of shares. This order gets executed immediately at the best possible price for the investor. It may or may not be the last traded prices in cases of high volatility. One need not enter the price criteria while punching in this order.
- Limit Order: Usually placed in a volatile market, such orders are placed when the investor is expecting the price to rise incase of a sell order and expecting the price to fall incase of a buy order. Unless the price and quantity is matched, such orders will not be executed as the conditions specified by the investor have not been met.
- Day Order: This order remains valid only for the day on which the order is placed as it is assumed that the factors driving the market may change every day and thus a fresh investment decision is required every day. For eg. If a trader places a request to buy 10 shares of Sun Pharma at Rs. 620 with current market price of Rs. 635, and if this price is not reached throughout the day, this order will be cancelled as soon as the market closes. Day orders are good only during the trading session between 9:15 am and 3:30 pm.
- Stop Loss Order: Orders which are similar to limit order but are conditional and get triggered only when the market price of a stock reaches or breaches levels specified by the investor. It is usually known as the Stop Loss Trigger Price. Investors usually use Stop Loss Prices when they have bought a share for a certain price and they do not wish to hold the share once it has breached a certain lower price level. It can also be used in cases where the trader has borrowed and sold some shares in the market expecting the price to go down. These orders are usually placed by intraday traders to limit their losses to a specific extent.
- Fill or Kill Order: This order implies a buy/sell of particular number of shares and requires immediate execution. If the order is not fulfilled as required, it is cancelled in whole. No partial orders are allowed as the investor requires complete order to get executed. These orders are used under special circumstances like a mutual fund trying to buy certain number of shares to earn a huge amount in intra-day scenarios. A partial order might change the targeted portfolio composition.
- Disclosed Quantity: Orders which disclose only a part of the order quantity to the market are referred to as Disclosed Quantity. Here an investor purchasing 10,000 shares of a stock not wishing to disclose his holding to the market shall disclose only purchase order of 1,000 shares. The further 1,000 quantity will be released after this, and so on till the complete order is executed. Exchanges have now set the minimum disclosed quantity criteria and keep revising the same from time to time.
- Short Sale: Traders may sell securities or financial instruments not owned by them by using this order for short sale. The main intention of the seller is to sell the shares at a higher price and repurchase them at a lower price. This types of order is common in a falling market.
- Basket Order: This order enables the investor to transact in a set of stocks, either index constituents or separately forming a basket created by the investor. A single order will enable the investor to purchase/sell multiple stocks at the same time. A basket order is useful for purchasing bulk stocks at a predetermined rate.
- Valid till Cancel Order: It is a buy or sell order that remains valid for 45 days after placing it. These orders can be placed during the market hours as well as post market hours. It also allows the investors to specify the number of days for which they would like to place the order. It does not require the same order to be placed again and again. Once the desired price levels are reached within the specified period, the shares are transacted.