Different Methods of
Buying and Selling
Let us learn about different methods of buying and
selling of shares in stock market for beginners learning
series.
Following are the two methods of buying and selling of
shares in Indian share market.
1. Market Order
2.
Limit Order
3. Stop Loss Order
Market Order
When you put buy or sell price of a stock at market rate
or select market order option in trading terminal then the
price get executes at the current rate of market. The market
order gets executed immediately at the current available
price.
In market order the shares will get executed at the best
current available price. Market order is used if you want to
execute your order very fast and at available price.
If you wish to buy or sell shares at any specific price then
market orders is not suitable for you then have to go for
limit order. Market order is for those who want to buy or
sell immediately at the current available price.
Limit Order
It’s totally different from market order. In limit order
the buying or selling price has to be mentioned and when the
share price comes to that price then the order will get
executed. But here it’s not sure that the price will come to
your limit order and the order get executes.
In other words in limit order the specific price is
mentioned and trader or investor wait till the stock price
reaches that price and once the stock price reaches that
price then the order will get execute.
Day traders has to take every precaution while using limit
order, especially who make use of margin amount In day
trading, because you have to close all your transactions
before 3:30 PM and if in case the price doesn’t reach to
your limit order then your order will be open (pending) and
then you have to go through the penalties.
Importantly limit order and stop loss order are used
together to minimize the risk.
Stop Loss Order
Stop loss orders are used to reduce or to minimize the
losses. This is very important term especially if you are
doing day trading (intraday trading). Stop Loss order as the
name indicates this is used to reduce the losses.
In Stop loss order the trigger price has to be mentioned, by
the trader, and once the rice reaches the trigger price the
order get executed with the best price available between the
trigger price and the limit price.
For example -
Suppose the trader bought the Reliance Industries at Rs
1000.
So he puts the following order to protect his losses.
The limit order of Rs 990 and stop loss trigger price at Rs
985 so if the reliance industries stock price starts falling
and if it reaches 985 then his trade executes with the
current market available price.
Note - The stop loss trigger price is placed below
the limit price in buy order and above the limit price in
sell order.
