Different Methods of Buying and Selling

Different Methods of Buying and Selling of sharesLet 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
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 xecuted. 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.