Modules for Beginners
Trading orders 101: Everything you need to know
Translate the power of knowledge into action. Open Free* Demat Account
Glossary: 20 terms you should know before placing an order in the market
8 Mins Read
A single transaction in any kind of market is a unique trade that occurs between a buyer and a seller. The buyer and the seller involved have complete freedom to set the price for the product or service they are trading.
A market is a space that consists of multiple buyers and sellers. It is defined as a gathering of people to facilitate the exchange or the trade of goods and services. The trade can either occur as a result of the buyers and sellers being in direct contact with one another, or, it can occur through intermediary agents who facilitate the transactions.
Liquidity is basically the ability to convert your investments into cash quickly and without much delay. The faster you’re able to convert your asset to cash, the more liquid it is said to be. With high amounts of liquidity, it is far easier to find the price at which you wish to buy or sell an asset, without having to make compromises to make it more attractive.
Last Traded Price (LTP)
At any given point during the trading day, the last traded price or LTP is the price at which the latest or the most recent trade occurred. The last traded price varies from one stock to another, for the simple reason that they all traded at different prices. For instance, let’s take up the following trades to understand the concept of the last traded price.
Current market price
The current market price is the price at which the next trade is available for buyers and sellers.
The closing price is not merely the price at which the last trade occurred. Most exchanges use a different technique to arrive at the closing price. This is because the frequency of trading is not uniform throughout the day. The last 30 minutes can be particularly hectic. With a heavy volume of trades occurring during the last half hour, it can be difficult to track which trade is the last one for the day, exactly. So, exchanges like the National Stock Exchange take the weighted average price for the trades occurring during the last 30 minutes to arrive at the closing price.
A market order is the most basic kind of order. It is an order that is executed immediately, at the best available price. When you place a market order, you do not specify price in the order details.
A limit order is a type of order that is executed at a specified price. Your stockbroker’s trading platform will generally give you the option to choose between market and limit orders. When you choose the limit order option, you need to specify the price at which you wish to purchase or sell the stocks you want to.
A stop-loss order is an order that you place to limit your losses. A stop-loss order can be placed for both buying and selling a share.
This is the price at which your order is triggered and activated for execution. It is sent to the exchange at the trigger price.
A cover order is a hybrid order that involves two orders: A regular buy/sell order that can be a market or a limit order and an accompanying mandatory stop-loss order to reduce the risk of losses.
A bracket order is a hybrid order that involves three orders: A regular buy/sell order that can be a market or a limit order, an accompanying mandatory stop-loss order to reduce the risk of losses and a target or exit price that will help you exit your position if the market moves as anticipated.
The disclosed quantity
The disclosed quantity is a field that allows you to display only a part of your total buy or sell quantity to the public. This is very useful for times when you’re planning to buy or sell large quantities of shares since it can help minimize abnormal price movements.
The previous close
The previous close is nothing but the closing price of an asset on the previous trading day. The closing price is basically a volume weighted average of the trades that happened during the last half-hour of a trading session (3.00 PM to 3.30 PM).
The open price
The open price of an asset is the price at which the first trade of the day gets executed.
The low and high prices
The low price depicts the lowest price that an asset has touched during a trading session, whereas the high price depicts the highest price that the asset has tested during the session.
Also known as the Depth of Market (DOM), the market depth is essentially a metric that measures the amount of liquidity in an asset or a counter. It is used to gauge the demand and supply for an asset like stocks. This is done using the number of buy and sell orders that are currently open for that asset.
Also known as circuit limits, price bands are basically lower and upper price limits that are set by the stock exchanges for an asset - be they stocks or indices. The asset is allowed to trade only within the set price band during a trading day. If the price touches either the lower price limit or the upper price limit, then the trading for that particular stock or index is halted immediately.
An illiquid asset is something that cannot be bought or sold in the market quickly. Finding buyers for an illiquid asset is almost always hard and may take days, weeks, or even months.
- Bid-ask spread
The difference between the bid price and the offer (ask) price for a stock is what is termed as the bid-ask spread. This spread typically tends to be small for stocks that are highly liquid. For stocks that are illiquid, however, the bid-ask spread can be quite large. This makes the bid-ask spread a huge indicator of illiquidity.
How would you rate this chapter?