Stock Market Order Types: Definition, List of 21 Order Types, Necessity
Order types are tools for investors trading stocks in the market. By attaching unique instructions to buy and sell orders, order types give traders control over critical aspects of trade execution like price, timing, and quantity. Order type addresses specific trading needs such as seeking immediate execution, limiting risk, or taking advantage of short-term movements.
Basic market orders are best for speed, while limit orders allow price targets. Stop orders and automate loss-cuts or profit locks. More advanced types, like fill-or-kill, require instant fills, while icebergs hide order sizes. Having the right combination of order types allows strategies like scalping, swing trading, or fading news events. Traders set optimal entry prices, bracket gains, and losses, and automatically adjust stops. With conditional orders, multilayered approaches are possible.
Precisely controlling trade execution through order types gives traders the flexibility to navigate constantly shifting markets smoothly. Advanced functionality ensures strategic objectives align with real-time price action. By understanding each type’s function, traders can effectively implement informed plans and manage risk according to their approach. Precise order placement thus becomes key to unlocking market opportunities.
What is the order type in the stock market?
Order types refer to the different instructions that investors attach to a buy or sell order to indicate how they want the order to be executed. Order types in stock trading include market orders, limit orders, stop orders, and stop-limit orders, which allow investors to specify things like the maximum price to pay or the minimum price to receive. Order types allow for flexibility and precision, enabling traders to strategically aim for ideal entry and exit prices when placing trades.
Basic market orders execute immediately at current market prices, while more advanced order types allow traders to set restrictions like price limits or duration. The available order types provide traders with the ability to customize how their trades are executed when navigating dynamic markets. The stock market allows traders to place different types of orders to buy or sell securities like stocks and options contracts. The most basic order type is a market order, which instructs a brokerage to immediately buy or sell a security at the best available current market price.
What are the different order types in the stock market?
The main order types used to buy and sell securities include market orders to execute immediately at current market prices, limit orders to set a maximum or minimum price, stop orders to buy or sell once the market reaches a specified price, and fill-or-kill orders that must be executed immediately in full or canceled.
A buy order is an order to purchase a security on the stock market at a specified price or better. An investor uses their brokerage company to submit a buy order when they wish to purchase shares of a stock. This tells the brokerage to purchase the shares at the market price or lower.
The way a buy order works is that the investor’s brokerage sends the order to the exchange where the stock is traded. This order goes into the order book along with other investors’ buy-and-sell orders for that stock. The deal is performed once a corresponding sell order is received at the same price or less. This means the shares are sold to the investor who placed the buy order.
An investor might put a buy order for 100 shares of ABC stock with a Rs. 50 limit price, for instance, if they wanted to purchase the stock at that price. This tells the brokerage to buy the shares at Rs. 50 or less. The shares would be bought for Rs. 48, and the order would be completed if the market price was Rs. 48 when the order arrived at the exchange. The investor would receive 100 shares of ABC stock at a price of Rs. 48 per share.
2. Sell order
A sell order is an order to sell a security on the stock market at a specified price or better. An investor uses their brokerage company to submit a sell order when they wish to sell any shares they currently hold. This tells the brokerage to sell the shares at the market price or higher.
The way a sell order works is that the investor’s brokerage sends the order to the exchange where the stock is traded. This order goes into the order book along with other investors’ buy-and-sell orders for that stock. The deal is performed once a matching purchase order is received at that price or above. This means the shares are sold to the investor who placed the buy order.
An investor might put a sell order for 100 shares of XYZ stock with a Rs. 25 limit price, for instance, if they wanted to sell their holdings at that price. This tells the brokerage to sell the shares at Rs. 25 or more. The shares would be sold for Rs. 26, and the order would be completed if the market price was Rs. 26 when the order arrived at the exchange. The investor would receive Rs. 26 per share for a total of Rs. 2,600 from the sale of their 100 shares of XYZ stock.
3. Market order
A market order is an order to buy or sell a security immediately at the current market price. Investors place market orders when they want their trade to be executed right away instead of waiting for a specific price.
A market order works by sending it to the exchange and filling it at the best available price in the market at that moment. It does not guarantee a particular price like a limit order does. The advantage is that it is almost guaranteed to execute quickly. The downside is that the final price could end up higher or lower than expected.
An investor might place a market order to purchase XYZ shares, for instance, if they want to purchase the stock at this time. This market buy order would be sent to the exchange and the shares from existing sell orders at the current asking price. The market order would execute at or near the latest traded price of Rs. 25 per share, XYZ, less any transaction costs.
Likewise, a market sell order might be submitted by an investor who wants to sell their shares of ABC stock right away. This would sell the shares to existing buy orders at the current bid price. The market sell order would execute at or around the latest price, minus any costs if the share price was Rs. 50.
4. Limit order
A limit order is an order to buy or sell a security at a specific price or better. Investors place limit orders when they want more control over the price at which their trade executes.
The way a limit order works is that the investor specifies the maximum price they are willing to pay for a buy limit order or the minimum price they are willing to accept for a sell limit order. This limit price is not guaranteed but sets the worst-case scenario.
For instance, an investor might put in a buy limit order for ABC stock with a Rs. 10 limit price if they wanted to buy shares of the company for Rs. 10 or less. This instructs the broker to buy the shares at Rs. 10 or below. At the exchange, the order would execute at Rs. 9 if ABC is trading at that price when it gets there. However, the order would not execute until it returns to the limit price if ABC is over Rs. 10.
Similarly, an investor could place a sell limit order for XYZ stock at a limit price of Rs. 15, which would sell the shares at Rs. 15 or above. This guarantees a minimum selling price but caps potential gains if XYZ rises past Rs. 15 before the order executes.
5. Stop-loss order
A stop-loss order is an order that triggers a market sell order when a security price falls to a specified level. Investors use stop-loss orders to limit potential losses on a position.
The way a stop-loss order works is that the investor specifies a stop price when setting up the order. This sets the price at which the order becomes active. The stop-loss order becomes a market order and sells the shares right away at the going rate if the stock price falls to the stop price.
For example, an investor buys 100 shares of XYZ company at Rs. 50 per share. To limit potential losses, they place a stop-loss order with a stop price of Rs. 45 per share. As long as XYZ stock trades above Rs. 45, no order is placed. The stop-loss, on the other hand, initiates a market order and sells the 100 shares at the next available price, let’s say Rs. 44.50 if the price of XYZ stock drops to Rs. 45. While the investor loses money compared to the original purchase price, the stop-loss limited additional downside beyond the Rs. 45 level when XYZ continued falling.
6. Trailing stop order
A trailing stop order is a type of stop order that trails the price of a stock as it moves up but closes the position if it falls by a specified percentage or dollar amount. The stop price is not set at a single, absolute dollar amount but is rather set at a certain percentage or amount below the market price.
As the market price rises, the stop price rises by the trial amount, but if the stock price falls, the stop-loss price remains the same. This way, trailing stop orders allow an investor to set a limit on the maximum possible loss without limiting potential gains if the stock price continues to climb.
For example, an investor buys 100 shares of ABC Company at Rs. 50 per share. They place a trailing stop order with a 10% trail amount. This sets the initial stop price at Rs. 45. The stop price will trail and increase to Rs. 54, which is 10% below Rs. 60 if ABC shares rise to Rs. 60. The stop is still in place at Rs. 54 and does not activate if the stock declines below Rs. 58. On the other hand, the order initiates a market order to sell ABC shares at the next available price if the stock drops below Rs. 52, which is below the Rs. 54 stop price. This protects the investor from losses exceeding 10% while still allowing profits if the stock keeps rising.
7. Cover order
A cover order is a buy order executed to close out an open short position. It is used to “cover” a short sale. An investor that shorts a stock does so by borrowing the shares, which they then sell on the open market in the hopes that the price will decrease and they could subsequently replace the borrowed shares by purchasing the shares at a reduced price. A cover order closes the short position by buying back the shares that were initially sold short.
The way it works is the investor places a cover order through their brokerage to repurchase the same number of shares that were initially sold short. This buying pressure helps “cover” the short position. The shares bought with the cover order are returned to the lender to replace the borrowed shares.
For example, an investor shorts 100 shares of Company XYZ at Rs. 50 per share. The stock drops to Rs. 40 per share, so the investor places a cover order to buy back 100 shares of XYZ at Rs. 40. These shares are returned to close out the short position and replace the borrowed shares. The investor makes a profit of Rs. 10 per share minus fees and commissions.
8. Bracket order
A bracket order is a set of orders that are used to protect gains and limit losses on a stock position. It comprises a profit-taking order, a stop-loss order, and the initial entry order. The goal of a bracket order is to lock in gains and minimize losses within a predetermined range.
The way a bracket order works is that once the initial entry order is executed at a specified price, two conditional orders are set: a sell-stop order and a sell-limit order. The sell-stop order gets triggered if the stock price falls below a defined downside level, protecting against further losses. The sell-limit order is placed above the entry price and acts to lock in gains if the stock price rises.
For example, an investor buys 100 shares of ABC stock at Rs. 50. They want to protect profits but also limit a loss to Rs. 2 per share. So they enter a bracket order with a sell-stop price of Rs. 48 and a sell-limit price of Rs. 54. The shares are sold to reduce losses if ABC falls to Rs. 48, as well. The limit order is activated to lock in Rs. 4 per share of the profit if it climbs to Rs. 54. The bracket order helps the investor maximize gains but also restricts the maximum loss to Rs. 200 if ABC stock falls.
9. Immediate order
An immediate order is a type of market order that an investor places to buy or sell shares as soon as possible at the current market price. The goal of an immediate order is to execute the trade immediately at the best available price rather than waiting to achieve a desired price.
The way an immediate order works is that it does not specify a price limit. It simply goes into the market as a market order seeking the fastest execution. The order is filled at the prevailing bid price for sales or ask price for buys. It keeps working until the entire order is filled or the market closes.
For example, an investor wants to sell 1,000 shares of stock XYZ right away before the price drops further. They placed an immediate sell order for 1,000 shares of XYZ. This order goes to the exchange and sells the shares at the current bid price of Rs. 25. The immediate order will be completed fairly quickly at Rs. 25 if there are enough purchase orders to cover the 1,000 shares at that price. The immediate order allows the investor to get out of the position as soon as possible rather than waiting for a desired price target.
10. Cancel order
A cancel order is an order placed by an investor to cancel an existing open buy or sell order that has not yet been executed. The goal of a cancel order is to eliminate an open order that the investor no longer wishes to remain active.
The way a cancel order works is that it notifies the brokerage firm that the investor wants to remove their previously placed order from the order book. The brokerage then contacts the exchange to cancel the original order so that it is unable to be filled. Once canceled, the open buy or sell order is eliminated and has no further effect on the market.
For example, an investor had placed a limit order to buy 100 shares of stock XYZ at Rs. 50 per share. However, XYZ is now trading at Rs. 48 per share, so the investor decides they no longer want to buy at Rs. 50. To cancel the open order, the investor places a cancel order requesting that the brokerage cancel their prior limit order for 100 shares of XYZ at Rs. 50. This successfully cancels the original order, which will no longer remain active to potentially buy shares at the higher price. The investor avoided buying at an undesirable price.
11. Delivery order
A delivery order is an instruction to a brokerage firm to deliver stock shares that an investor has sold to the buyer’s brokerage. It facilitates the transfer of stock ownership after a sell order is executed.
The way a delivery order works is the selling investor’s brokerage notifies the company’s transfer agent that the shares have been sold. The transfer agent then cancels the old stock certificates registered to the seller and issues new certificates to the buyer’s brokerage firm. This officially transfers ownership. The shares are then delivered electronically to the buyer’s account to complete the sale.
For example, Investor A sells 100 shares of XYZ stock. The sell order is executed on the exchange. To finalize the transaction, Investor A’s brokerage sends a delivery order to XYZ’s transfer agent requesting the 100 shares be deregistered from Investor A to the buyer. The transfer agent cancels Investor A’s certificates and creates new certificates in the buyer’s name. The shares are delivered to the buyer’s brokerage account electronically. The delivery order enables the stock transfer to occur according to the terms of the sale.
12. Intraday order
An intraday order is a buy or sell order for a security that is entered and executed on the same trading day. The order does not persist beyond the current trading session.
An intraday order works by being active only until the market closes for the day, at which point any unfilled portion is automatically canceled. Intraday orders allow investors to capitalize on same-day swings in stock prices. The short duration gives investors the flexibility to alter their trading strategy as the market moves during the day.
For example, an investor wants to take advantage of the expected volatility in XYZ stock today. They place an intraday buy order for 500 shares at Rs. 25, expecting a dip early in the day. An anticipated intraday rebound is exposed to the investor if a slump happens that permits the buy. In order to prevent an unwanted entry price, the order is canceled at close if the dip does not occur.
13. Good till triggered order
A good till-triggered order is a conditional sell order used in stock trading. The investor places this order with their brokerage firm to sell shares at a specified trigger price or higher. The order remains inactive until the market price reaches the predefined trigger price level.
The way a good till triggered sell order functions is the investor first selects the trigger price. This is the minimum price at which they want to sell their shares. The order is then sent to the stock exchange, where it stays dormant. The order will not be executed until the market price climbs up and hits the trigger price. At that point, it turns into a market order and sells the shares at the next available price at or above the trigger.
For example, an investor owns 500 shares of ABC stock and wants to sell if the price reaches Rs. 50. They would place a good till triggered sell order with a trigger price of Rs. 50. This order would sit idle until ABC stock reached Rs. 50. As soon as the market price hit Rs. 50, the sell order would become active and look to execute at the next price of Rs. 50.01 or higher. The investor’s 500 shares of ABC stock would then be sold automatically once the trigger is activated.
14. Good till the canceled order
A good till canceled order is a buy or sell order that remains open until it is either executed or canceled by the investor. This type of order is commonly used in stock trading to allow more flexibility in executing a trade.
The way a good till canceled order works is that once placed, it will persist in the market until one of two things happens – either it gets filled, or the investor proactively cancels it. It does not expire at the end of the trading day like other order types. The order continues to work over multiple trading sessions until it is completed or withdrawn.
For example, an investor wants to buy shares of XYZ stock at Rs. 25. They place a good till canceled buy order for 100 shares at a limit price of Rs. 25. This order will remain active until the stock price reaches Rs. 25 and the order is filled. The investor waits for their limit price for as long as they like if XYZ stock does not drop below Rs. 25 in the near future. As long as the order hasn’t been carried out yet, the investor is free to cancel the goods until the order is canceled whenever they decide to.
15. Immediate or cancel order
An immediate or cancel order is a type of order used by traders that must be executed immediately in full, or else it will be canceled. This order type allows a position to be filled quickly at a specific price and quantity.
The way an immediate or cancel order works is that once placed, it goes directly to the market looking for matches. A portion of the order will be executed if it is completed right away at the listed price or even cheaper. Any part of the order that cannot be filled right away will be canceled back to the trader. No portion remains open.
For example, a trader wants to buy 250 shares of ABC stock at Rs. 10. They place an immediate or cancel order for 250 shares at Rs. 10. 250 shares will be bought, and the remaining order will be canceled if there are 300 shares available at Rs. 10. Since the entire order quantity could not be fulfilled right away if just 100 shares are offered for Rs. 10, those 100 will be purchased, and the remaining 150 shares will be canceled. This ensures either full execution at the desired price or no execution at all.
16. Fill or kill order
A fill or kill order is a type of order that must be executed in its entirety immediately, or else it will be canceled. This all-or-none order stipulates that the entire quantity must be available at the specified price at the time it is placed.
The way a fill or kill order works is that when placed, it is immediately sent to the exchange to be filled. The order will be fulfilled in full if its entire size is finished at the quoted price or even more. On the other hand, the complete order will be canceled back to the trader without any partial fills if the entire amount cannot be filled at that precise moment.
For example, a trader wants to sell 300 shares of XYZ stock at Rs. 25. They place fill or kill order to sell 300 XYZ shares at a limit price of Rs. 25. The complete 300-share order will execute if purchasers are prepared to accept 300 shares for Rs. 25. However, as the total amount could not be filled immediately at the necessary price, the 300 share order will be canceled if there are just 100 shares bid at Rs. 25.
17. All or no order
An all-or-none order is a buy or sell order that must be executed in its entirety or not at all. This order type stipulates that the full amount of shares must be available for the order to execute.
The way an all-or-none order works is that when placed, the order is sent to the market seeking to be filled in full at the specified price or better. The order will not execute at all, not even partially, if the total order quantity cannot be supplied quickly. No shares will be bought or sold. The order will either be completed in total at one time or not completed at all.
For example, an investor wants to buy 200 shares of ABC stock at Rs. 25 and will not accept partial execution. They place an all or none order to buy 200 ABC shares at a limit price of Rs. 25. The deal will be carried out if sellers are prepared to supply all 200 shares at a price of Rs. 25 or less. Nevertheless, the order won’t be completed at all if there are only 100 ABC shares available at Rs. 25 since the remaining 200 shares can’t be acquired. This ensures the investor will only purchase the shares if the complete order quantity is filled.
18. One cancels the other (Bracket) order
A one cancels the other (OCO) order, also known as a bracket order, is a pair of orders stipulating that if one order is executed, then the other order is automatically canceled. This helps investors limit their risk in volatile market conditions.
The way an OCO bracket order works is that an investor places both a stop-loss sell order and a profit-taking limit sell order simultaneously. The stop-loss order would be set below the current market price, while the limit order would be set above. The other order is instantly canceled when one of the orders is executed in accordance with the movement of the market price.
For example, an investor buys 100 shares of XYZ stock at Rs. 50 and wants to protect their investment from downside risk. They could place an OCO order with a stop-loss at Rs. 45 and a limit sell order at Rs. 55. The limit order is canceled if the share price falls to Rs. 45. The stop-loss sells the shares. The limit order cancels the stop loss and sells the shares if the price reaches Rs. 55. This brackets the exit strategy within a price range without the risk of both orders being executed.
19. On open order
An open sell order is a type of order placed with a stock brokerage to sell shares of a stock at the prevailing market price. The investor placing an open sell order authorizes their broker to sell the specified number of shares at the current market price when the order is executed.
An open sell order works in the following way: Once the order is placed with the brokerage, it is sent to the exchange where the stock is traded. The open sell order then goes into the exchange’s order book, which aggregates buy and sell orders for that stock. The order will sit there until a matching buy order for the shares comes in at the same price. The deal is then promptly carried out at the going rate.
An investor might submit an open sell order for 100 shares of XYZ stock to their brokerage, for instance, if they want to sell 100 shares of XYZ stock. This order would be sent to the exchange and placed in the order book. The investor’s shares would automatically be sold at Rs. 25 per share upon the receipt of a buy order for 100 shares of XYZ at the market price of Rs. 25.
20. On close order
An on-close order is a type of order to buy or sell a stock at the closing price on the day the order is executed in the market. This order is only executed at or near the closing trade on the exchange where the stock is listed.
An on-close order works in that it is entered during the trading day but specifies the order should be executed at the market’s closing price. The order is held until the end of the trading session and filled at or near the closing price based on the last trading range. The portion of the order that cannot be filled in full at the closing price is canceled.
For example, an investor wants to buy 100 shares of XYZ stock at the closing price on a given Thursday. They would enter an on-close buy order for 100 shares of XYZ stock. At the end of Thursday’s trading session, the broker would execute the order at whatever XYZ’s closing price is, say Rs. 25.50 per share. By using an on-close order, the investor ensures they pay that day’s closing price, not an intraday price.
21. Peg orders
A peg order is a type of trade order where the price is set relative to the national best bid and offer (NBBO). The order “pegs” to a certain offset from the NBBO and moves with the market.
The way a peg order works is that once the order is placed, the price is automatically adjusted by the brokerage to remain pegged at the set offset. To keep the intended offset, the peg order price adjusts by the same amount if the NBBO changes. A peg order essentially “floats” along with the current market prices as they move up and down.
For example, an investor wants to buy shares of XYZ stock using a peg order with a peg offset of 5 cents. A peg order to purchase would be executed at Rs. 25.20 if the current national best offer for XYZ is Rs. 25.15. The peg order will also adapt to a buy price of Rs. 25.30 in order to preserve the 5-cent offset if the national best offer subsequently shifts to Rs. 25.25.
Each order type in stock trading has a distinct function and gives investors flexibility and control over the prices and quantities at which they execute transactions depending on their investment strategy, risk tolerance, and market forecast.
Why are different order types necessary?
Order types are necessary because different types of orders allow investors to specify different trading instructions. Market orders ensure immediate execution at the best current price but provide no control over the exact price paid. Limit orders let investors set a minimum or maximum price but may not execute if the limit price is not reached. Stop orders turn into market orders when a specified price trigger is reached and are useful for protecting profits or limiting losses. Day orders expire at the end of the trading day, while good-till-canceled orders remain active until filled or canceled, avoiding the need to closely monitor open positions.
What is the order type for the option?
There are four main types of orders that are placed when trading options contracts in the stock market – buy to open, buy to close, sell to open, and sell to close. A buy-to-open order is used when an investor wants to purchase an options contract to open a new position. This establishes them as the holder of that contract. A buy-to-close order is used when an investor already holds an open short options position and wants to close out that position by buying back the same contract.
On the other hand, a sell-to-open order is used when an investor wants to open a short position by selling an options contract they don’t already own. This establishes them as the writer of that contract. Finally, a sell-to-close order is used when the investor already holds an open long options position and wants to close the position by selling the contract. The order type depends on the investor’s current position and desired direction.
What are the types of orders in NSE?
The most common order type is the Regular lot order, which specifies the standard market lot quantity for the security being traded. For stocks, this is one lot of the company’s shares. Special Term orders allow customization of expiry terms for the order. Negotiated Trade Orders facilitate off-market transactions between two parties at a negotiated price and quantity. These orders match the two parties outside of the open market.
Finally, Loss orders allow investors to specify a trigger price at which the order will execute in order to limit potential downside losses if the security’s price starts falling dramatically. Having access to these different order types provides investors on the NSE with flexibility and risk management options when executing their trading strategies.
Can I place an order after trading hours in stock markets?
Yes, it is possible to place stock trade orders outside of regular trading hours in the stock market. Regular trading on the stock market exchanges takes place during normal business hours on weekdays. However, an array of orders are placed by investors outside of typical trading hours. These extended-hours orders are entered through online brokerages and trading platforms. There are certain risks and limitations associated with after-hours trading that investors should understand.
Are all order types supported in the stock exchange?
Yes, all major order types are supported in stock exchanges. Stock exchanges, being pivotal platforms for trading, support a variety of order types to give traders flexibility in how they want to buy and sell stocks. The most basic order type is a market order, which executes a trade immediately at the best available market price on the stock exchange. Limit orders allow traders to specify a maximum price to buy or a minimum price to sell, and the order will only execute if it meets the limit price on the stock exchange. Stop orders become market orders when a specified stop price is reached. These allow traders to lock in profits or limit losses if the price moves against them.
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