Trading Order Types Limit Order, Market Order, Cover Order, Bracket Order
Trading order types: Want to trade a stock online but confused on which order type to use? Underst&ing the differences between different order types would put an end to the confusion. Each order type has its own way of execution & can only be used a particular way.
The basic inputs for an order are.
1.Whether to buy or sell
2.Whether to execute at the current market price, higher price or lower price
How many Types of Order?
1) Normal Order:-Limit Order,Market Order.
Stop Loss Order:- Market Order, Limit Order.
2) Special Order (2 types):- Cover Order, Bracket Order.
3) Basket order.
Both buy & sell orders have their own ways of price execution depending on the order type selected, as shown above. So let us first study the Normal order types.
This is an order type in which case, regardless of whether it is a buy or sell, the order is kept in the order book at a particular price until the price is triggered. This kind of order type is used when the trader wants to ensure that his buy order his not executed at a price higher than his trigger price, & that his sell order is not executed at a price lower than his trigger price.
Suppose Mr.Ganesh want to Buy ( Take position) Wipro company share at Rs 100 but current price is 99. in this situation limit order is very usefull for Mr ganesh.
In this type of order there is no specific price mentioned; instead, it is guaranteed to get executed at the best available price. “Market” here means the best bid price quoted for a sell order & best ask price quoted for a buy order. This kind of order type is used when the trader wants a guarantee to buy or sell a stock at the best prevailing price in the market but does not want to specify a specific price.
Suppose Mr.Ganesh want to Buy ( Take position) Wipro company share at current price in this situation market order is very usefull for Mr ganesh.
As the name suggests, the order is mainly used to prevent the loss of a particular position already present or open in the market. But these orders can also be used to create a fresh position if the stock triggers a price. The two major terms used in a stop loss order are:
Trigger Price: The price at which the order execution is to be initiated.
Limit Price: The price, up to which the order is can be executed; otherwise the order remains open.
There are two types of stop loss orders.
1)Stop Loss Limit Order:-In this kind of stop loss order both the trigger & the limit price are to be given. In case of a buy stop loss limit order the Trigger Price < Limit Price & in case of a sell stop loss limit order the Trigger Price > Limit Price.
2)Stop Loss Market Order:-In this kind of Stop loss order, only the trigger price is to be mentioned. Once the trigger price is hit, the order becomes a market order & is sent to the exchange.
We have seen the basic order types widely used in the market. Since markets can be very volatile, special order types are also available for highly volatile scenarios.
This is a special order type which has a market order & a stop loss market order attached to it. In this type of special order, the first leg is always a market order; once executed, the second leg (the stop loss market order) is placed. The stop loss order cannot be cancelled. Both orders are interconnected. The order can be modified up to the Last Traded Price (LTP) in the case of a favorable market movement.
Bracket order has three different legs.
1st Leg:- Limit Order / Market Order.
2nd Leg:- Stop loss Limit Order / Stop loss Market Order.
3rd Leg:- Limit Order / Market Order.
A Bracket order is the order type which newly introduced in indian stock trading portals.
Brackt order give option to user to enter a new position with Traget price / EXIT & stoploss order.If main order is executed the system will place 2 more orders TR & SL. when One of the 2 order get executed the another order will get cancelled automatically.
suppose TR or Sl order not executed system will sq off that position near about 3:15 pm for equity order & 4:45 pm for currency order.
Advantages of bracket order.
1) Bracket order is very helpfull for Intraday Trader.
2) ones you placed Bracket Order u no need to sit in front of Trading desk.
3) Keeps you alway from intrady fear & greed situation of intraday market.
Suppose Mr.Ganesh want to Buy ( Take position) Wipro company share at Rs 100 & his Target price is Rs 101 & Stop loss price is Rs 99 (& current market price is 95)in this situation Mr ganesh need to set bracket order ( buy trigger at Rs 100, TR 101& SL 99). suppose Target achived than Stop loss will be cancel automatically.