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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!

0 Comments

Initial wealth building strategies – 3

Hi there,

Let’s talk one more way to accumulate money.

Let’s assume that we are in a bull market. Stock prices are on the rise but you expect a correction sooner or later. You, as an investor, can take advantage of such situations in the market to build wealth.

HERE’S AN EXAMPLE

Let’s assume that you own 500 shares that you bought at Rs 250 per share. The bull market, and nothing else, has pushed the price up to Rs 400 per share. You want to hold the stock, but are concerned that a market correction might drop the price below Rs 250 per share.

You sell 250 shares at Rs 400 for a gross of Rs 100,000 which can be put in a short term fixed deposit. When the market correction comes, you buy back shares at a lower price. For example, say the stock fell to Rs 200 per share. Your Rs 100,000 profit will buy you 500 shares.

You now own 750 shares of the stock and have reduced your average cost from Rs 250 per share to  Rs 216 per share and you didn’t take a penny out of your pocket.

250 shares @ Rs 250/share = Rs   62,500
500 shares @ Rs 200/share = Rs 100,000

Earlier you had 500 shares by investing Rs 125000. Now you hold 750 shares @ Rs 216.66 /share without taking a penny from your pocket.  Of course in this example, for ease of explanation,  I have not considered two things. One is the tax on income when you sell shares at a high price and the second is the brokerage for buying and selling shares.

ALRIGHT..WHAT IF IT’s A BEAR MARKET?

If you have done your research properly, you will be able to judge whether the stock’s price decline is simply a reflection of the market’s general pessimism or a signal that something is fundamentally wrong with the company. If the price decline is due to general pessimism in the market, any smart investor would utilize that opportunity to grab more shares of that company at drop price, thus significantly bringing down the average cost per share invested.

0 Comments

Initial wealth building strategies – 2.

Hi there,

That is an alternative approach for beginners to make safe investments. Now, it may not be possible for every one to keep analysing the stock market on a continued basis. . You might be working in an MNC or a professional lawyer who just can’t afford to keep looking at stock market scores.So, how do people like you take advantage of share markets?  How do you avoid making worst investment mistakes? All you need to do is bring in an element of discipline in investing by adopting a systematic investing approach.

SYSTEMATIC INVESTMENT

This involves investing in selected stocks through equal installments spread evenly over time. Such a style offers you some benefits.

  • First, it is light on your wallet. You can get started by setting aside a mere Rs 2000 or Rs 5000 every month and keeping your investments going. I am sure that such a small sum set aside will not affect your family budget. You can increase the amount whenever you want.
  • Second, it takes care of the principal problem related to timing of investments. It helps you stay in the market through its ups and downs, without making any conscious attempt to time your purchases.

That is because when you invest the same sum of rupees, say Rs 5,000 every month in the stock market through the years, you automatically buy more shares when the market is low, and less when the market is buoyant. This is exactly as it should be.

While you keep investing like this, you can also think of pumping in more money whenever there’s a market downturn. For example , you invest Rs 10,000 every month systematically.  In a particular month, the stock market has made a correction. You can think of utilizing those dips to buy a bit more than usual. May be an additional Rs 10,000. This is a more effective way of investing and building wealth in the initial years.

As the saying goes, “little drops of water make the mighty ocean”…such is the impact of investing systematically.

Have a nice day!

0 Comments

Initial wealth building strategies- 1

Hi there,

By this time, I believe, you would have understood what investing is and the principles behind it. You would have also started paper trading. Any investing method (value or growth) suggests holding your investments for a long term. But, how long is long term?  All those value picks may not create enormous wealth. Some may fail. So, how would you balance this? I would suggest the following method.

  • First, spread out your initial capital into 4 or 5 lots. You are going to invest only 1/5th of your capital in a particular company.
  • Secondly, Whenever you think there’s an opportunity, put 40%from that 1/5th you allocated. The balance 60% should preferably be invested in 3 equal shots so that you can utilize all the dips in prices and you also bring down the cost.
  • Invest with the intention of a 10-15% profit objective. Once you reach your profit objective, sell enough shares in the company to remove your initial investment and leave the profit there. This profit will remain invested for a long term.
  • Repeat steps 1-3 as you search for another company to trade for a 10-15% profit and plant the Remainder for the long term.
  • Keep repeating. By doing this, you Guard your investment principal at all costs and let your profits run .You will have a good portfolio of shares at the end.

Happy investing.

0 Comments