When I started my journey in the stock market a decade back, then I was unsure of many terminologies associated with the Share Market. Therefore, in the ongoing educative series, will like you to pick up What is Order Type in the Share Market with an example specific to the Zerodha platform.
Order type means what kind of order you would like to place with your broker while buying or selling securities. Alternatively, it can be the method of executing an order with your stockbroker. Knowing the type of order you can place with a broker will help you in making well-informed decisions making. It is one of the techniques used by investors to get a profitable deal.
We will explain the most popular order type which you can execute while trading. In addition, we will cover the benefits that it offers to you as an investor or trader. Let’s check out the same:
As the name suggests, you have to place an order with your broker at the market or ongoing price of the security for execution. Market orders get executed immediately. Generally, the last traded price will not be the price at which order execution happens. This type of order guarantees the execution of order but does not guarantee the price at which it gets executed. In general, market orders get executed at or near the current bid/ask price. It’s like buying or selling a security without any negotiation.
A limit order is an order to buy or sell a security at a specified price. Wherein you as a buyer or seller define the specific price and the order can be executed at the limit price or lower/higher than the limit price depending upon on buying or sell order. Usually, a limit order is not guaranteed that it will be executed. It can only be fulfilled provided it matches the limit price threshold.
As it does not guarantee execution, this ensures the investor does not pay/ sell at a predetermined price. Provided, there is no bid within the range of the limit price, then the order will be stand canceled. Therefore, it limits your losses by protecting you from a sudden price change. The order doesn’t need to get executed the same day, you can choose a future expiry date also for the order execution if the condition set by you is meeting.
Stop Loss Order
Stop-loss order is an order to limit the losses you have the potential to bear. Thereby, it gives instructions to the broker to trade in shares if the price gets worse than the specific price.
Remember that the essential difference between a limit order and a stop order is that a limit order will only be filled at the set limit price or better, whereas a stop order will be filled at the current market price which means it could be executed at any price.
Time needed: 2 minutes.
Now we have understood the type of order one can place with a broker. It’s time to check the steps which one can follow to place an order with Zerodha. Here are the steps:
- Login onto Zerodha Kite App
You can enter your Username, password, and Pin on the login page of Kite.
- Search for the stock you want to place an order for buy/sell
Let’s say I want to sell the stocks from my holding kitty. Further, I will choose Holding tabs and add the stock to the MarketWatch.
- Click on Buy/Sell from the Marketwatch screen on the left corner of the window
Let’s say I want to sell the stock I will click on the buy button for the respective stock. And fill in the order details and select the order type by selecting the right radio button: Market, Limit, Stop Loss, Stop Loss or Stop Loss Market Order.
In the case of a Market Order, you don’t have to provide any price instead just specify the quantity you want to trade in and click on the Sell button.
Whereas in Limit Order, you have to specify the quantity plus the price at which you’re willing to sell or buy that stock. Further click on to Buy/Sell button.
Last but not the least, stop-loss order wherein you have to provide the upper and the lower limit within which order should get executed. However, in the case of SL-M, one has to only provide the upper/lower limit of the order execution depending upon the trade type.
- Click on Buy/Sell
Once you have chosen the right order type as per your current need and risk profile. After that, you may click on Buy/Sell button. Post which, your order will be sent to exchange for execution. Always use SL-M for guaranteed execution.
Hope after reading this article, you have got a fair idea of choosing the right order type as per market conditions in line with your financial goals & risk profile. In case you’re a newbie to the stock market, ensure you know the order type while placing an order to ensure you’re safeguarding yourself from possible risk & losses.