When you start trading in a market, you will find that the prices keep changing. The price you see at a given point of time will change in minutes. Often the investors are more concerned with trading a stock at a certain specified price only. Such kind of arrangement is done with the brokers and is known by the name of Orders. Orders are basically the different types of instructions that are given to brokers by the traders on how they would like to act as regards buying or selling the shares based on the price of the shares, mutual funds, options or other securities.
There are different types of orders. The description of these orders are as follows:
Market Orders – The market order is the most common and basic type of order for trading. Under this type of order, the trader instructs the broker to buy or sell the shares at a best price that is available. This type of order gives an assurance to the trader that his order will be executed but does not guarantee the price at which it will be executed as the order will get executed at the nearest price to the bid price. One should always remember that the last traded price will not necessarily be the price at which the order will be processed.
Limit Orders – A limit order is an order that is executed at a specific price. An order to buy securities will be executed at a price equal to or lower than the bid price. Similarly, an order to sell will be executed at a price equal to or higher than the bid price. For example, an investor wants to purchase the shares of Reliance Industries Limited for not more than Rs. 830, then he can submit a limit order to the broker and accordingly the broker will execute the order if the price of the share reaches at Rs. 830 or falls below.
Stop Order – A stop order is also known as stop loss order. A stop order is an order to the broker to buy or sell a specified stock if its price reaches a particular level. This price is known as the stop price. After the attainment of the stop price, the order automatically gets converted to market order.
Buy Stop Order – The buy stop order is generally used by investors who wish to limit their expected loss on a share or want to protect profit on those share which have been sold short. These orders are entered at a stop price which is above the current market price of the share.
Sell Stop Order – The sell stop order is generally used by investors who wish to limit their expected loss on a share or want to protect profit on the stocks that they still hold with them. These orders are entered at a stop price which is below the current price of the share.
Traders can choose the type of order as per their own convenience and can decide the best course of action so as to gain in a maximum possible manner.