Stock Market Orders – Types and usage
In stock market trading it is important to know what are various stock market orders available for traders. Earlier, dealers at the trading desk used to guide investors / traders as per their requirement. With changing times, now most traders use online trading systems to punch their orders. It is very important to understand various types of stock market orders available for them.
Stock Market order types explained here are based on the availability of such facility to traders from exchange. Broadly, these order conditions can be divided into three categories, namely:
1) Time related order conditions
2) Price related order conditions and
3) Quantity related order conditions
Time related stock market order conditions
a) Day Order: This is the most common type of order used by investors and traders. It is valid till the close of market hours for the day (If it not executed during the day, in which case the status will be executed). After market close, all day orders will be flushed out of the system by the exchange.
b) GTC (Good Till Cancelled) : A GTC order remains in the trading system till it is cancelled by the trading member or gets executed. Maximum number of days a GTC order can be placed will be notified by exchanged in India from time to time and may vary.
c) GTD (Good Till Day/Date): A trader can specify number of days or the date up to which the order to remain in the trading system. After such specified number of days or specified date, order gets flushed out of the system, if does not get executed in the mean time. No of days mentioned include all calender days including the day on which order is placed irrespective of trading holidays. The maximum number of days / Date for which the order can remain in the system for execution will be notified by exchanges from time to time.
d) IOC (Immediate or Cancel): As the name suggests IOC is an order type which if does not get matched and executed upon entering the order book, gets cancelled immediately. If partial order execution takes place, rest of the order gets cancelled. For Example, if an IOC order is placed for 100 shares and 20 shares got executed immediately, remaining 80 shares gets cancelled.
Price related stock market order conditions
Limit Order: Limit order is used by investors to specify the execution price required. Usually while placing limit order, price will be higher than current market price for Limit sell orders and price will be lower than current market price for Limit buy orders. Limit orders always execute at the Limit price or better Price. Limit order provides better control in trade execution.
For example if a buyer places a limit order for buying Nifty at 6020 when Nifty is trading at 6050, the order will be executed at or below 6020. Similarly if a sell order is placed at 6070 while nifty is trading at 6050, it will be executed at 6070 or above it. If during the order validity period Limit price is not reached order will not be executed.
Market Order: Market Order is most widely used order type by many traders. It executes immediately after placing order. The drawback of this type of order is, the execution price is not in the control of the trader. The price at the time of placing order and the price at the execution of order may vary widely and can be either benefit or cause loss to trader depending on the final execution price. Market order is used when immediate execution of order is required (For example when price is moving adversely due to unexpected news etc.,) rather than precise price execution. While placing market order, protection % can be specified which protects traders by not executing order if the price is beyond that % specified.
Stoploss Order: Stoploss orders orders usually placed to limit the loss on an existing position. It can also be placed to take position when the price moves a threshold level. Unless the specified threshold level (Trigger Price) is breached, order does not get activated and will not be in order book. Stoploss order have two parts one being trigger price and other limit price. If limit price is not specified, stoploss orders executed at market price as soon as trigger price is breached.
For Example, if a trader is long in nifty futures at 6000. He does not want to lose more than 50 points if nifty moves downside. The trader can place a stoploss sell order with a trigger price at 5950 and Limit price at 5940. If nifty touches 5950, this stoploss order gets triggered and as long as nifty is above 5940 (Limit Price) it gets executed and position gets squared off. For a stoploss sell order, trigger price will be below current market price and limit price will be below trigger price. For a stoploss buy order, trigger price will be above current market price and limit price will be above trigger price.
Quantity related stock market order conditions
Disclosed Quantity: Traders who wish to trade large volumes may not want to disclose all their order volume as it may have adverse impact on their trades. Disclosed quantity allows to disclose only a part of the order which will be visible in the order book. For example if a trader wants to purchase 10000 shares and if he discloses quantity of 1000, only 1000 quantity will be visible in order book. After this 1000 gets executed, another 1000 shares are visible in order book and so on till all the quantity gets executed. At present minimum of 10% of the order quantity must be disclosed. This percent of disclosed quantity will be decided by exchanges from time to time.
All Or None (AON) order, if full order is not matched, it will stay in order book.
Minimum Fill order (MF) allows investors to specify minimum quantity by which the quantity must be executed.
As per SEBI directives, at present in India All or None (AON) orders and Minimum Fill (MF) orders are not allowed on Indian stock exchanges.