The Order Flow.
The list of types of sell/buy orders you can place with your stock broker is long and confusing. We explain the most popular ones and how you can put these to best use.
This most commonly-placed order is for buying and selling at the best possible price. The person who wants to buy a stock asks the broker to do so at the lowest available price. The seller asks the broker to look for the highest offer. Both, of course, do not know at what price the stock will be finally bought or sold.
"Market orders are executed immediately, but the price is not guaranteed. The last traded price is not necessarily the price at which the order will be executed. In volatile markets, the price at which this order is executed often deviates from the last quote," says Mayuresh Joshi, vice president, institution, Angel Broking.
Such an order cannot be changed during the matching period. Also, it is not valid for block deals.
In this, the buyer keys in the price limit beyond which he will not buy. The broker can buy only at the specified price or lower. Similarly, the seller specifies a limit below which he will not sell. For instance, a purchase limit order for Rs 50 will work only if there is a seller at Rs 50 or less.
"A limit order is placed when the market is volatile and the investor expects the price to come down from the day's range. It may also be placed at a level perceived to be good from fundamental and technical perspectives," says Vikram Dhawan, director, Equentis Capital.
If both price and quantity conditions cannot be met, it is not executed. If it cannot be executed immediately, it remains valid till the end of the trading session.
Limit orders can be placed on holidays and during non-market hours too.
The term 'limit order book' refers to the fact that only limit orders are stored in the book and all market orders are crossed against the limit orders sitting in the book. Since this book is visible to all market participants, it is called an 'open book'.
MARKET PROTECTION ORDER:
While placing an order on the Bombay Stock Exchange, clients can specify the deviation from the current offer/bid price up to which the order can be executed.
For instance, if you enter two, it will mean that the price at which the order will be executed will be limited to plus/minus 2% of the current market price. It won't be executed if this range is crossed.
"If there is no bid within the specified range, the order will be cancelled. In case of part execution of the order (only a few shares can be sold/bought within the range), the remainder of the order will be converted into a limit order at the same price," says Vishal Gulechha, head, equity product group, ICICI Securities.
Though this order is the same as the limit order in most aspects, there is one key difference-if it cannot be executed immediately, it is cancelled, unlike the limit order, which remains valid for a day.
This order is valid only on the day it is placed, the assumption being that factors that drive the market may change any time and thus investment decisions need to be taken afresh every day.
For example, if an investor places an order to buy a stock trading at Rs 810 for Rs 805, and this level is not reached during the day, it is cancelled as soon as the market closes.
"It works best in volatile markets when the investor is unsure about timing the price changes in a security and so waits for the market to open the next day to decide his new strategy," says Shantanu Deb Mookerjea, executive director, LSI Financial Services.
Day only orders are good for only the current trading session, not extended-hour sessions that occur before 9.15am or after 3.30pm.
It is a conditional limit order which is activated only when the market price of the security reaches or crosses a threshold specified by the investor in the form of Stop Loss Trigger Price or SLTP. When an SLTP is specified, it becomes conditional on the market price of the stock crossing the SLTP.
Stop order is not executed until this condition is satisfied. Once the last traded price of the stock reaches or surpasses the SLTP, the order becomes activated (eligible for execution by being taken up in the matching process of the exchange, becoming a normal limit order).
There are two conditions under which this order can be used. One is when the stock is expected to fall below the trigger price (it is sold). For example, if a trader has bought 100 shares of IndusInd Bank at Rs 405, and places a stop at Rs 395, his holding will be sold the moment the stock falls below Rs 395. Two, sometimes you may want to buy a stock if it rises above a certain level.
"Only intraday traders should place this order. Stop order can limit losses," says AK Prabhakar, senior vice president and head, equity research (retail), Anand Rathi Financial Services.
Stop-loss orders are kept in a separate book until they are triggered.
FILL OR KILL ORDER:
It is an order to buy/sell a certain number of shares and is for immediate execution. If it cannot be fulfilled immediately, it is cancelled.
"The order must be filled in its entirety. Partial fills are not allowed and are rejected," says Rakesh Goel, senior vice president, Bonanza Portfolio.
Market experts say this order is used only under special circumstances. For instance, a mutual fund manager might want to buy a certain number of shares to gain from a big intra-day trading opportunity. This is because a normal order that is only partially executed may change his targeted portfolio composition.
This order allows disclosure of only a part of the order quantity to the market. For instance, an order of 1,000 with a disclosed quantity mandate of 200 means the market will know that you are buying just 200 shares. After this, the order for another 200 will be released, and so on, till the full order is executed.
However, the exchanges set minimum disclosed quantity criteria from time to time.
It's an order for selling securities or financial instruments not owned by the investor, with the intention of purchasing them later at a lower price. It works when the market is falling or is expected to fall.
Basket trading helps investors enter orders in a set of stocks which are either index constituents or part of a basket created by them. In this, multiple stocks are bought in a single order. It broadly follows the path of market order.
For example, if you want to buy Infosys, Reliance Industries and Tata Steel stocks, you can key in the details on your trading platform and place the order at one time instead of buying these stocks separately. Or, the complete order can be saved in an excel file, which gives you the freedom to change prices and quantity for any stock any time.
"Basket orders are useful when you are purchasing in bulk stocks which you have already decided to buy at pre-determined prices. So, before the market opens, you can have this order saved on an excel file for uploading as soon as the market closes," says Nithin Kamath, chief executive office, Zerodha.com, an online trading portal.
VALID TILL CANCEL ORDER:
It's a buy or sell limit order which remains valid for 45 days. It can be placed both during and after market hours and allows clients to specify the number of days for which they wish to place the order.
This eliminates the need for placing orders for the same stock again and again every day.
Clients can place the order today, with a validity of 45 days, and be sure that the shares will be bought or sold if his desired price levels are reached.
"This type of order serves the twin purpose of eliminating the need for placing orders again and again and buying/selling stocks at desired prices. It is unique to ICICIdirect.com," says Gulechha of ICICI Securities.
Reproduced From Money Today. Copyright May 01, 2013. LMIL. All rights reserved.
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