Buying & Selling shares

Buying and selling shares is an easy process with fast online terminals. There are different types of Buy & sell orders you can place in the market. Although it’s an easy process, carelessness in executing can result in financial loss. Here’s a brief explanation of each type of order and its benefits.

TYPES OF ORDERS

LIMIT ORDERS

Type of orders where you specify the price while entering the order into the system. You have to select the appropriate option to notify whether you are placing the order at Market or at Limit. If you select the ‘Limit order’ option then you have to enter a price that is in multiple of regular tick size (multiples of 0.05).

MARKET ORDERS

when you place an order without a limit price with an intention to get it executed at the best price obtainable at the time of entering the order, it’s called a Market order.

STOP LOSS ORDERS

when you place an order with a trigger price it’s called a stop loss order.. Till the trigger price specified in the order is reached or surpassed such orders are kept dormant. The intention for placing a Stop Loss order is to restrict the maximum loss in a particular position to a predetermined amount.

Stop Loss orders are always placed in pairs. The first order has to be a normal order – either limit order or market order. The second order will be a stop loss order that will ensure that maximum loss is restricted.

The benefit of stop loss orders:

If you place a buy order at Rs100 and do not wish to take a loss of more than Rs2 then you will want to sell at Rs98, when the market starts sliding contrary to your expectations. You can obviously keep a watch on the market and sell when it slides and exit your position at Rs98. But this may not always be possible. By entering a Stop Loss order you achieve the same objective without a need to keep a watch on the market.If you place a sell order when the price is above Rs98, your order will get immediately executed. If you place a stop loss order for Rs98 then this order will remain dormant till market prices breach the trigger price.

In the current example you will place a Stop Loss order for Rs98 with a trigger price of Rs98.10. You can also place a Stop loss order at Market with a trigger price of Rs98.10. In this case when stop loss is triggered the shares will be sold at market rate.

Most users make a mistake of placing a stop loss order without the original order. Users typically mistake the limit price to be the main order and trigger price to be stop loss order. Thus in the above example many users intending to limit the loss to Rs2 will place only one order at a limit price of Rs100 and a trigger price of Rs98. You should have a clear understanding of how stop loss orders are to be placed before placing such orders.

IOC ORDERS

Here you place an order with an IOC instruction i.e. with an intention to get it executed immediately, failing which the order is cancelled. It is possible that the order gets partially traded, and in such cases the remaining portion of the order is cancelled immediately. Stop loss orders cannot be placed as IOC orders. You can place a normal order (at limit or market) as an IOC order.

Take Note

  • You must fill the Quantity text box correctly before placing the order. Quantity has to be in multiple of lot size. In cash market most of the shares have a lot size of 1. In Derivatives lot sizes vary from scrip to scrip. In most of the trading platforms, Quantity field cannot be directly entered in the Derivatives OE window. You have to click on the up/down control next to the Quantity text box and the quantity will increment/ decrement by lot size.

Disclosed Quantity

You can leave the Disclosed Quantity (DQ) text box blank. In case you fill it, it has to be at least 10% of the order quantity. An order with a DQ condition allows you to disclose only a part of the order quantity to the market. For example, an order of 1000 with a DQ condition of 200 will mean that 200 is displayed to the market at a time. After this is traded, another 200 is automatically released and so on till the order is executed fully.

PLACING ORDERS TO BUY AND SELL

Once you are sure you entered all the information correctly (quantity and the type of order) you can click on the ‘Place’ button. This will create an Order packet and display it to you. You have to confirm that the packet is generated correctly by clicking on the ‘Confirm’ button. After your confirmation, the order will be sent into the market. Each order packet that is created at your end is uniquely numbered (Local Order ID) and time-stamped before being sent to the broker.

As soon as the order is received at the broker’s server an acknowledgment is sent back. It is then given a unique Broker Order ID, time-stamped and sent for checking the limits. Once the broker confirms that the order is within your financial limits, it is put in queue for sending to Exchange and you will be notified of the same. When the order is sent to Exchange, another notification will be sent to you.

When orders are received by Exchange they are numbered (Exchange Order ID) and time-stamped again. Exchange may either accept the order or may reject it due to errors in the order or due to price out of days price range or any other reason. It may also freeze your order and may release the freeze later. Whether the order is accepted, rejected or frozen by the Exchange will be notified to you.

MODIFYING A BUY/SELL ORDER

You can modify an online order to buy or sell a share once your original order it is accepted by the Exchange.  You cannot modify or cancel an order after it has got executed. Obviously the application has in built safeguards and will not allow you to modify or cancel an order unless it can be done. However, there is a gap between the time when you picked an order to be modified/ cancelled and the time when it was received at the Exchange, and it is quite possible that the order changes status during that time. A pending order might get executed during that gap. You may therefore get a message saying ‘Order does not exist’. This means that the order that you tried to modify or cancel was not found by the Exchange in its Order Book at that time.

CONFIRMATION OF A TRADE

Confirmation messages for Order and Trade related actions will be displayed in the Messages Panel instantly. Generally, you will get confirmation messages for

  • Orders sent to the broker
  • Orders received by the broker
  • Orders accepted or rejected by the broker
  • Orders put in queue to Exchange
  • Orders sent to Exchange
  • Orders accepted, rejected or frozen by the Exchange
  • Trade confirmations sent by the Exchange

All these messages will display the time and associated order IDs – Local Order ID, Broker Order ID and Exchange Order ID.
That’s about buying and selling shares.

Good day!

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