To trade in the stock market you have to place orders to execute the transactions. A stock market order is a request made by the investor to execute a buy or sell transaction at a given price in the market. You can place a stock order online or through the broker on a phone call.
In this article, you will learn about the different types of stock orders that you can place while purchasing or selling stocks in the stock market. In any type of order in the stock market, there would be two types of transactions. It would be either be a buy order or a sell order. A buy order comprises of purchasing the stock whereas a sell order comprises of selling the stock in the market.
Table of Contents
5 Different Types of Stock Orders
Limit order is an order for buying and selling the shares at a specific price. With a limit order in place, you will not be able to purchase or sell stock at a price that is higher or lesser than the specified price. You must remember that there is no guarantee that your order will be executed in the limit order. Let us take an example to understand the concept of the limit order. Suppose you want to purchase the shares of GMR Infra at Rs. 20 and its current market price is Rs. 21, in such a situation you can place the order through limit order.
Using the limit order, you can set the purchase price at Rs. 20 and the purchase order will execute only when the price hits Rs. 20. Similarly, if you are holding GMR Infra shares and you want to sell them at Rs. 22, you can set the sell limit order at Rs. 22. Here your shares would be sold only when the share price touches Rs. 22, otherwise not. In case of the limit order, if the execution does not take place because the stock does not reach the specific price level, the order shall stand cancelled at the end of the day.
Market order is different from the limit order. In the market order, you can buy or sell shares at the current price that is prevailing on the exchange. The benefit of the market order is that it will get executed at the current price of the stock. Let us take an example to understand it better. Suppose you place a market order for purchasing 1000 shares of GMR Infra. Since your order is a market order, the trade will take place at the prevailing market price on the exchange. Similarly, if you want to sell the shares of GMR infra using market order then the transaction will execute at the current market price.
Stop Loss Order
Stop loss order is one of the most important orders for the intraday traders. In this type of order, the traders put a stop loss price i.e. the price at which the transaction will close or square off. With a stop loss in place, the traders can protect themselves from heavy losses. Stop loss price is the trigger price for this transaction.
Let us take an example to understand stop loss order in a better way. Suppose you purchase the shares of GMR Infra at Rs. 20 and put stop loss of Rs. 19. Now if the price of the stock hits Rs. 19, the transaction will square off and your trading position will close.
Stop Loss Market Order
Stop loss market order is a combination of market order and stop loss order. Stop loss market order activates when the market price of a stock touches a specific price level and trade executes at that level as a market order. To put it in simple words, stock market orders execute when the price of a stock reaches a particular level.
Let us take an example to understand stop loss market order in a better way. Suppose you purchase the shares of GMR Infra at Rs. 20 and put the stop loss at Rs. 19. So when the price of the stock touches Rs. 19, your position will square off and the stock would be sold. Now due to sudden news, there is a buyer only below Rs. 19 i.e. Rs. 18.50, then in such a case, stop loss market order will execute the transaction by squaring off your position at Rs. 18.50. Therefore, if you expect heavy volatility due to news or any other reason, you must not put stop loss market order in place.
Stop Loss Limit Order
Stop loss limit order is just a higher version of stop loss market order having the combination of limit order and stop order. In this type of order, you place a stop loss at a particular price and the transaction gets executed when the stock touches the stop loss price level. What makes stop loss limit order special is the fact that it will square off the trade at only the stop loss price and not below or above it.
Let us take an example to understand stop loss limit order in a better way. Suppose you purchase the shares of GMR Infra at Rs. 20 and put the stop loss at Rs. 19. So when the price of the stock touches Rs. 19, your position will square off and the stock would be sold. Now if a big sell trade takes place bringing the price down to Rs. 18.50 suddenly than your stop loss limit order does not get executed.
In such a case, the stop loss limit order will try to execute your order at the price given by you and would wait until the price of GMR Infra bounces back to Rs. 19. When the price will come back to Rs. 19, the stop loss limit order would trigger and the trade will close by squaring off your position. Thus, with a stop loss limit order in place, you can protect yourself from big losses. However, if the price does not bounce back, you will always be at the risk.
The above are some of the orders that every trader and investor in the stock market must know. To learn more about such details and insights into the stock market, you may visit Trading Fuel. We are the leader in providing free stock market education in the form of blogs and articles. We regularly update our website with the latest information. Subscribe to our website and learn more details about the stock market.