What is an Order in the Share Market?
In the share market, order refers to an instruction given by the issuer of the order to their broker or dealer for buying, selling, delivering or receiving securities/commodities as part of their commitment to a given set of terms.
Tell Me About the Different Types of Orders?
A market order is an order to buy or sell a stock at the best available price. Generally, this type of order will be executed immediately. However, the price at which a market order will be executed is not guaranteed.
In contrast, a limit order is an order that places a limit on the price you are willing to pay to buy a stock or on the price you are willing to accept to sell a stock. Thus, a limit order guarantees a price, but execution remains uncertain. This is because the stock may not reach the price at which the order is placed during the trading day.
Stop Loss Order
A stop-loss order is designed to limit an investor’s loss on a position in a security. For example, if an investor holds 100 shares of ABC Company at Rs. 20 per share and the stock is now trading at Rs. 28 per share. The investor wants to continue holding the stock for further upsides but also does not want to lose out on all the unrealized gains he has made so far. He decides to hold the stock, but sell it only if it drops below Rs. 25. Rather than monitoring the stock price on a daily basis, the investor can simply enter a stop-loss order to sell 100 shares of ABC if its price drops to Rs. 25. This way he can gain if the stock goes up and limit his losses if the stock goes down.