How to place an order

Placing an order to buy/sell a stock is easy, you think? After all, how different can it be from walking into a shop and buying a bottle of ketchup?

Well, for one, the price of a bottle of ketchup does not fluctuate as wildly as the price of a stock. When you go to buy ketchup, you are clear that you wish to buy one bottle of ketchup, but when it comes to stocks, the price might determine the quantity that you buy.

Hence, it is important to know how to place an order in the stock market.

Since stock prices are so very volatile, the stock exchanges offer various methods to place the order. Let us breeze through the various ways of placing an order to 'buy' or 'sell' a stock.

 

1. How to place a simple 'Market Buy/Sell Order'

You ask your broker to buy/sell ABC quantity of XYZ company stock 'at market'.

When should you use such an order?

1. When you are very familiar with the stock and its price movements.
2. When you want to buy/sell the stock quickly.

When should you not use such an order?

1. When you are not aware of the current price of the stock.
2. When you are purchasing/selling a large quantity of shares.
3. When you are purchasing/selling an illiquid stock.

2. How to place a 'Limit Buy/Sell Order'

You ask your broker to buy or sell 2 shares of Infosys at a particular price, say Rs7,000.

When should you use such an order?

1. When the stock is illiquid in nature.
2. When the stock price is volatile in nature.
3. When you have reasons to buy/sell it at a particular price or less.

When should you not use such an order?

1. When the stock is around the price you want to purchase it at but is rapidly rising/falling. It is better to buy/sell it at market than to end up chasing a price.

3. How to place a 'Good Till Date Buy/Sell Order'

You ask your broker to buy/sell 2 shares of Infosys at a limit price, say Rs6,500, and know that it might take a few days for the stock to get to that price as it is well outside that price. Then tell him to keep the order standing till a certain date by which time you think it will reach your price.

Now this order will remain as a live limit order till the trading day, which has been defined as the date till which the order should be in the system. However, by the current systems of the stock markets, you can only place these orders good till the end of the settlement.

When should you use such an order?

1. When you have your reasons to buy/sell the stock at a particular price and you feel that the stock would be available at that price in the next few days, if not the same day.
2. When you know what price you want to buy/sell the stock at, but do not want to monitor the price everyday.
3. When you want to buy/sell the stock at a particular price, but because of your travel plans, you would not be able to contact your broker.

When should you not use such an order?

1. When the general market trends are very uncertain.

4. How to place a 'Good Till Cancelled Buy/Sell Order'

You call your broker and ask him to buy/sell 2 shares of Infosys at Rs6,500 (say) and keep the order live till you ask it to be cancelled.

Normally, all orders placed are automatically cancelled at the end of the trading day on which they are placed. A 'Good Till Cancelled Order' is a variation of the 'Good Till Date Order' only difference is that in this case, you do not have an idea of the date till when to keep the order live.

Under the available systems in the markets, a 'Good till Cancelled Order' gets cancelled at the end of the settlement.

When should you use such an order?

1. When you are not aware till when to keep the order live.
2. When you do not want to monitor a stock or call your broker to place the same order day after day.

When should you not use such an order?

1. When you would not be in a position to contact your broker after placing the order. This is so because should you decide to cancel the order, you would not be able to.

5. How to place a 'Buy Stop Loss Order'

You call your broker and ask him to buy stop loss 2 shares of Infosys at a limit/market price (say Rs7,000 again) with the trigger price of Rs6,500.

Lost?

The stop loss order placed has a trigger price. This trigger price has to be higher than the market price at the time of placing the order. As soon as a trade takes place in the market at the trigger price, then the order for 'buy' gets active in the system.

Which means in the above order, as soon as a trade takes place at Rs6,500, then an order to buy 2 shares of Infosys at a limit/market price will become active.

When should you use such an order?

1. When you have a sale/short sale position and would like to close it if the market goes adverse.
2. When you have a sale/short sale position that you do not wish to monitor, but you know what maximum loss you would wish to bear, should the position go adverse.
3. When you would like to buy a stock only after it crosses a certain price because your research indicators suggest a bull run in the stock after it crosses that level.

When should you not use such an order?

1. When the trigger price is below the current prices in the market.
2. When the stock is very illiquid, then a 'buy stop loss order' at market should not be placed.

6. How to place a 'Sell Stop Loss Order'

You call your broker and ask him to sell stop loss 2 shares of Infosys at a limit/market price (Rs6,000) with the trigger price of Rs6,500.

The stop loss order placed has a trigger price. This trigger price has to be lower than the market price at the time of placing the order. As soon as a trade takes place in the market at the trigger price, the order for sell gets active in the system.

Which means, in the above order, as soon as a trade takes place at Rs6,500, an order to sell 2 shares of Infosys till Rs6,000 will become active.

When should you use such an order?

1. When you have a purchase position and would like to close it if the market goes adverse.
2. When you have a purchase position which you do not wish to monitor but know the maximum loss you would wish to bear, should the position go adverse.
3. When you would like to sell a stock only after it goes below a certain price because your research indicators suggest a bear phase in the stock after it falls below that level.

When should you not use such an order?

1. When the trigger price is above the current price in the market.
2. When the stock is very illiquid then a sell stop loss order at market should not be placed.

Congratulations! You are now familiar with the various ways of placing an order in the stock market.