Stock trading involves putting order for buying or selling the stocks or index. However, not many people are aware of the fact that you can place different stock order types. With these different stock market order types, you can set different types of limit in your orders. The various types of stock trading orders are market orders, limit orders, stop orders, trailing stop orders, and conditional orders. In this article, you will learn about each order in detail.
Different Stock Order Types
1. Market Orders
A market order is a order in which the transaction to buy or sell takes place at the current market price. Therefore, when you want to buy a stock and put a market order, the execution of the transaction will take place at or close to the ASK price. Likewise, when you place an order to sell a stock and put a market order, the execution of the transaction will take place or close to the BID price.
To put it in simple words, a market order executes a transaction at the best price available when the transaction takes place. As a trader you must be careful while placing the market order because in some stock the bid/ask spread may be very wide which ultimately would mean that you would not get good price for the trade.
2. Limit Orders
A limit order is one in which you get the option to buy or sell the stock when it reaches a particular price level. Like for example, a limit order for buying a stock would take place only when the stock reaches the given or lower price level set in the order. Similarly, a limit order for selling a stock would take place only when the stock reaches the given or higher price level set in the order.
Like for example you want to sell 100 shares of Reliance Industries at Rs. 1500 but the current price is Rs. 1480 than you can place a limit order. If suppose you put the limit order to sell Reliance Industries at Rs. 1500, the trade would execute only when the price will reach Rs. 1500 and otherwise the order would not execute at a price below it.
Limit orders are meant for regular traders who have the experience of trading in the market and good control over it. The limit order can be put during the pre-open and post market hours as well.
3. Stop Orders
Stop loss orders are like an insurance policy which trigger only on happening of a certain event. A stop loss order is meant to control or limit the loss on a stock. You can place this order with the broker to buy or sell any stock after the stock reaches a particular price level.
The stop orders are of two types; Stop market orders and stop limit orders. A stop market order is one that automatically sells your holding at the market price when the price reaches that or below levels. On the other hand, stop limit order ensures that you do end up selling or purchasing a stock below or above the price given in the order. The stop limit order will execute exactly at the price given in the order.
Stop orders are an important tool to limit the loss and traders must always ensure that they have a stop loss in place. With a stop loss in place the losses will be minimal and you will be able to get out of bad trades at an early time.
4. Trailing Stop Orders
Trailing stop orders are rarely put in use by the traders but they are equally important. The whole purpose of putting trailing stop loss order is to protect yourself from the downside in the stock price and along with that you have the room to close your trade in profits. This type of order is useful when you already hold stocks that are profitable and you can safeguard the profit the putting a trailing stop loss. This type of stop loss must be put after carrying out proper technical analysis for intraday trading.
5. Conditional Orders
This type of order is for sophisticated traders. The conditional orders allow the traders to pre-set their entry and exit strategies. The conditional traders are of multiple types that include; Contingent, Multi-Contingent, One-Triggers-the-Other (OTO), One-Cancels-the-Other (OCO) and One-Triggers-a-One-Cancels-the-Other (OTOCO).
The above are the different types of stock orders. To learn more about these order, you may consider joining Nifty Trading Academy. We are the leader in providing stock market education in India. With our classes you can learn about technical analysis and understand reading the charts. This will help you in placing the right type of orders during the trade. With our classes you can not only become a successful intraday trader but also a long term investor. For more information you can contact us via email or phone.