Discussion Topic: Stock Order Types
I hope you have definitely heard about different types of Orders in Stock market, but do you know how many types of orders you can place while trading in Stock Market? Today we are going to explain all the stock order types you can place while trading in the share market.
You should ensure that you know which stock order types your broker accepts. Different brokers accept different types of orders to be placed. There are some basic order types that all brokers accept and some others less common order types that may or may not be accepted.
Here we are trying our best to provide information and explanation on all the stock order types you can encounter.
Stock Order Types - Different Types of Orders in Stock Market
There are quite a few order types that can be placed in the stock market. Those are as follows:
- Market Order (MKT Order)
- Limit Order (LMT Order)
- Stop Entry Order
- Stop Loss Order
- Trailing Stop Order
- CNC (Cash n Carry)
- MIS (Margin Intraday Square-Off)
- Normal (NRML)
- Good for the Day (or "Day") Order
- Immediate or canceled (IOC)
- After Market Order (AMO)
- Iceberg Order (Disclosed Quantity)
- Good Till cancelled (GTC)
- Bracket Order (BO) / One-Cancel-the-Other (OCO) Order
- Cover Order (CO)
- Fill or Kill (FOK) / All or None (AON) Order
Market Order (MKT Order)
A Market Order (MKT) in stock trading is an order to buy or sell stocks (shares) at the best available market price.
For example, suppose the bid price for INFY share is currently going at $18.50 and the ask price is going at $18.60.
If you place a market order to buy INFY shares, then it would be sold to you at the current ask price of $18.60.
The time when you click the buy button, your trading platform would instantaneously execute a buy order at that exact price.
It’s also sometimes called as 1-click ordering.
[See Also: What is Bid Price and Ask Price?]
Limit Order (LMT Order)
A Limit Order, sometimes denoted as LMT Order, is a type of order that is placed to either buy below the market or sell above the market at a certain price.
For example, suppose the INFY share is currently trading at $18.50, and you want to buy (go long) that share when the price drops to $18.00.
In that case, you have two options to achieve your requirement:
Either you can sit in front of your trading system and wait for it to hit $18.00 (at that point you have to manually place a buy market order).
Alternatively, you could set a buy limit order at $18.00 (Now even if you are not in front of the system, your buy order would automatically get executed if the price hits $18.00).
Likewise, if you want to sell (go short) that share at $19.00, you can place a sell limit order at $19.00 so that the system automatically executes your sell order once the price climbs to $19.00.
You can effectively use Limit Order (Buy Order or Sell Order) if you think that the price will reverse upon hitting the price you specified!
Stop Entry Order:
A Stop Entry Order is a type of order that is placed either to buy above the market or sell below the market at a certain price.
For example, suppose the INFY share is currently trading at $18.50 and is heading upward. And you presume that the price will continue in the upward direction if it hits $19.50. So you want to buy the INFY stock only if it hits the price of $19.50.
Here you can take two approaches to achieve this.
The 1st option is to sit in front of your trading terminal and buy the stock when price reaches $19.50. And the 2nd option is to set a buy stop entry order at $19.50, and let the system automatically execute the buy order if the price reaches $19.50.
Likewise, if you presume that the price will continue to drop if the price hits $17.50, then you can place a sell stop entry order at a price of $17.50. So, if the price hits $17.50 then the trading system will automatically place a sell order on behalf of you.
The most effective use the stop entry order (buy stop order or sell stop order) is when you feel that price will move in one direction if it hits a certain price!
In stock market it is frequently used in the opening range breakout intraday strategy.
Stop Loss Order:
A Stop Loss Order is a type of order that is placed in order to minimize losses in a trade if the price goes against you. Stop loss orders are always placed in the opposite direction of your current trade.
If you are in a buy position (long position), you need to place a sell STOP order.
If you are in a sell position (short position), it is to be a buy STOP order.
Things to remember about stop-loss order:
- A stop-loss order is always attached to an existing position (buy or sell potion).
- A stop loss order remains active until the attached position is settled (either meets the take profit target or hit stop loss) or you cancel the stop loss order.
For example, suppose you bought (went long) Microsoft shares at $90.20 with a take profit of $93.00. And to limit your maximum loss, you placed a stop-loss order at $89.00.
This means if your trade goes against you and the price of Microsoft shares drops to $89.00 instead of moving up, your trading platform would automatically execute a sell order at $89.00 the best available price and close out your buy position for around $1.20 per share loss.
In the same way you can also place a stop loss order for any sell position (short position).
Stop loss order is extremely useful if you don’t want to sit in front of your trading terminal all day worrying about huge loss of money. Alternatively, you can set a stop loss order on any open position and be worry free.
A stop loss order can be of two types, Stop Loss Limit Order (SL-LMT) and Stop Loss Market Order (SL-M).
Stop Loss Limit Order (SL-LMT) / Stop Limit Order:
Stop Loss Limit Order (Also called Stop Limit Order or SL or SL-LMT) is a conditional request made to the broker (or the system) to place a stop loss order with a predetermined limit price, once the share price crosses a predetermined trigger price.
When you are having a buy position (long position), a sell stop order is placed. Here you have to specify a trigger price below the purchase price, which when touched, a limit sell order is placed to the system to square off the position.
Similarly, when you are having a sell position (short position), a buy stop loss order is placed. Here you specify a trigger price above the selling price, which when touched, a limit buy order is sent to the system to square off the position.
Stop Loss Market Order (SL-M) / Stop Market Order:
Stop Loss Market Order (Also called Stop Market Order or SL-M) is a conditional request made to the broker (or the system) to place a stop loss order to square-off the open position at current market price.
When you are having a buy position (long position), a sell stop order is placed. Here you have to specify a trigger price below the purchase price, which when touched, a market order is placed to sell the stock and square off the position.
Similarly, when you are having a sell position (short position), a buy stop loss order is placed. Here you specify a trigger price above the selling price, which when touched, a market order is sent to the system to buy the stock and square off the position.
Trailing Stop Order or Trailing Stop Loss Order:
A Trailing Stop Order or Trailing Stop Loss Order is a special type of stop loss order that moves as the price fluctuates.
Let’s say that you’ve decided to buy (go long) Microsoft shares at $90.20, with a trailing stop of $0.50.
This means that initially your stop loss would be at $89.70, it will move up $0.50 for every $0.50 upward movement of the original stock price. So, If the stock price goes up and hits $90.70 then your trailing stop loss would also move up to $90.20 (or breakeven).
But one thing to remember that trailing stop loss doesn't move backward. Your stop will STAY at this new price level even if the stock price starts falling down.
Returning to the example, with a trailing stop of $0.50, if the Microsoft share hits $91.20, then your stop would move to $90.70 (or lock in $0.50 guaranteed per-share profit).
Your trade will remain open until and unless the share price moves against you by $0.50 at any point of trade.
Once the market starts to reverse and hits your trailing stop price, a market order would be placed to close your position at the best available price.
CNC (Cash and Carry):
The CNC Order is used for taking delivery of the Stock to your Demat account or for selling shocks from Demat Account. If you select this order type or product type, then any shares you buy would be delivered to your Demat account in electronic form.
Typically, you have to pay the full amount to execute this type of transaction and brokers usually don’t provide leverage on CNC trading. The settlement of share is done in the T+2 day, that is the “Trading Day + 2 days”.
MIS (Margin Intraday Square off):
Margin Intraday Square off (MIS) Order type is used when you take an intraday position. That means you have opened a trade position which you would be closing (squaring off) within the same trading day.
Generally, in MIS your order will remain activated till you close the position manually or till the end of the trading day when your broker force closes the trade.
The greatest advantage of selecting MIS product type is that you would get the facility of margin trading from your broker. It means that if you choose MIS as a product type (or order type) and buy any particular stock than you only need to pay a margin amount instead of paying the full amount. This enables you to buy large quantity of shares with lesser capital.
MIS can be used for buying both equity shares and F&O contracts.
NRML (Normal Order):
The NRML or Normal Order is a type that is particularly used to trade in future contract, options contract, currency, and commodities. You should use NRML order type when you plan to buy or sell a future or options contract and carry the position overnight.
It is same as taking delivery of stock but applies to for F&O contracts and you are allowed to hold the position for a maximum until the expiry of that contract.
Good for the Day (GFD) Order or Just “Day” Order:
A Good For the Day (GFD) order or just “Day” Order remains active in the market until the end of the trading day.
Usually, the order gets cancelled automatically at the end of the trading day, unless explicitly specified or manually cancelled.
Immediate or Cancelled (IOC):
Immediate or Cancelled (IOC) is a conditional order made to the broker (or the system) to execute the transactions immediately or to cancel it.
It can either be a market order or a limit order.
In cases of Market IOC order, the transactions will be carried out immediately if the numbers of shares in demand are available. If not then the order will be canceled.
Similarly in case of limit IOC order. Then the transactions will be executed immediately if the numbers of shares in demand are available at the required price. If not then the order will be canceled.
IOC order may fill completely, partially, or even may not fill at all. But in any event, the order will not stay active in the system.
After Market Order (AMO):
After Market Order (AMO) allows you to place a buy or sell order for a stock even after the closure of stock market.
An AMO can either be a Limit Order or a Market Order. But this type of order doesn't get executed immediately.
All accumulated After Market Orders are sent to the stock exchange for execution when the stock market opens and if the required margin is available in the trading account.
Iceberg Order (Disclosed Quantity):
Iceberg order is a conditional request sent to the broker (or the trading system) to buy or sell a large quantity of shares but in a part of smaller predetermined quantity.
Generally, it is used to place a buy or sell order for a large quantity of shares mentioning the “Disclosed Quantity” for a small quantity of shares.
The entire order is broken down into small orders and sent to the stock exchange one after another until the full order gets filled.
This strategy is named as iceberg because a small quantity order is shown to the public as the tip of the iceberg, while a large quantity order remains hidden like the body of the iceberg.
This approach is taken by big traders or trading houses to buy or sell a large number of shares without much affecting the current stock price.
Uncommon & Conditional Stock Orders Types:
Till now we have learned about most common types of stock orders that are supported by a majority of the brokers. Now we would learn about some uncommon and conditional stock order types that may or may not be offered to you by your broker (by default). Still, these stock orders types are worth to know, in case your broker supports it:
Good Till Cancelled (GTC) Order:
Good Till Cancelled (GTC) orders are those orders that remain active in the market until you cancel them. Your broker would never cancel your GTC order at any time (Till you have account balance remaining). Therefore, it is your responsibility to remember those scheduled orders and cancel them if you don't need them anymore.
Bracket Order (BO) / One-Cancels-the-Other (OCO) Order:
In Stock Trading, a Bracket Order (BO Order), A.K.A One-Cancels-the-Other (OCO) order, is the means of putting two opposite orders (One take profit & one stop loss) when the parent order is triggered. And then if any of the opposite order gets fulfilled the other order gets cancelled automatically.
If you know the OCO orders used in forex trading, it's little different here in stock trading, so don't get confused. Bracket Order or OCO Orders of stock trading is nearly similar to OTO orders of Forex trading.
For example, suppose Oracle Shares is currently trading at $51.80. And you think that once the price hits $52.80, it will reverse and head downwards but only up to $50.00.
So how will you place such a trade? The answer lies in the Bracket Order or OCO order.
In order to enter into the trade even if you are not at the front of trading platform, you set up a single Bracket order (OCO Order) to set a sell limit at $52.80 and at the same time, place a related buy limit at $50.00 and for safety place a stop-loss order at $53.50.
Being a Bracket Order or OCO Order, both the buy limit order (take profit) and the stop-loss orders will only be placed if your initial sell order at $52.80 gets triggered. And if any of the take profit or stop-loss order gets filled, the other one gets cancelled automatically and the trade closes.
Cover Order (CO Order):
In Stock Trading, a Cover Order (CO Order) is used to automatically put a stop loss order when the parent order is triggered. Unlike bracket order here only a stop loss order is put and there would be no take profit level.
For example, suppose Adobe Shares is currently trading at $198.00. And you think that once the price hits $195.00, it will reverse and head upwards for a long period. But you want to rely on technical analysis before you decide on the take profit level.
In order to enter into this type of trade even if you are not at the front of the trading platform, you set up a single Cover Order (CO) to set a buy limit at $195.00 and at the same time, place a stop-loss order at $193.00.
Being a Cover Order, the stop-loss orders will only be placed if your initial buy order at $195.00 gets triggered. As there is no take profit limit is defined, you need to close this trade manually when your profit target is met. Alternatively, if the stop-loss gets hit then also the trade closes but at a loss.
Fill or Kill (FOK) Order / All or None (AON) Order:
Fill or Kill (FOK) order, sometimes called as All or None(AON) Order, is a conditional trade request sent made to the broker (or the system) to execute the transactions (Buy or Sell Orders) only if the full ordered quantity of shares can be bought or sold, or else to cancel the order.
This type of orders either fills completely or cancels immediately. This is a very rarely used order type.
The Conclusion & Final Thoughts:
The basic stock order types (market order, limit entry order, stop entry order, stop loss order, trailing stop loss order, Day, IOC, CNC, MIS) are most common types of stock orders used by most traders.
Here’s a cheatsheet (current market rate is shown as the purple dot):
Make sure that you fully understand and are comfortable with your broker’s ordering system (trading terminal) before entering into a trade.
Also, always check with your broker for specific order information to see if any rollover charges will be levied if a position is held longer than one trading day.
The best strategy in stock trading is to always keep your ordering rules simple.
And most importantly, DO NOT trade with real money (or at least don’t put a huge amount of money) until you feel extremely comfortable with the trading platform and order entry system you are using. Wrong trades can put you in a nightmare and are more common than you think.
Hope you have enjoyed the above article on the Stock order types. Be with us to explore forex trading, stocks trading, and other money-making opportunities.
Leave us some comments if you have any questions about the types of orders in the stock market. Also let us know which order type you use most frequently.