A growing number of small investors is buying and selling stocks online. However, before you attempt to do it yourself, here are a few terms you should familiarize yourself with.
A. DAY TRADING
These orders are used for buying and selling shares in the normal course of stock trading during the day.
A.1 DAY ORDER
This order is valid only for a day. If it is not executed by the end of the session, the order gets cancelled automatically.
Eg: Tata Steel is trading at 440/-. You place a day order for shares at 430/-. It will be executed only if the share price dips to 430/- during the day.
A.2 IMMEDIATE OR CANCEL
This is for buying or selling a share as soon as the order is placed. If there is no buyer or seller at the specified price, its gets cancelled. Sometimes IOC orders are executed partially.
Eg: An IOC order is placed for 100 shares of Reliance Industries at 12.05pm when the share price is 900/-. Only 25 shares are bought before the price rises to 905/-. The order for the balance 75 shares is cancelled.
A.3 MARKET ORDER
This order is executed immediately, irrespective of the share price. The buyer gets to know the price only after the order has been executed.
Eg: In the above example, if it was a market order for 100 shares of Reliance, the buyer would have got 25 shares at 900/- and the balance 75 at 905/-.
A.4 GOOD TILL CANCELLED
Unlike the day order, this remains valid for a specified number of days till it is cancelled by the trader. The validity period is specified by the exchanges. GTC orders help investors buy at a specified price without having to monitor the share price closely.
B. STOP LOSS ORDERS
Stop Loss orders limit the loss of the investor by buying back or selling a share if the price moves contrary to expectations. He doesn't need to monitor the price.
B.1 MARKET PRICE PROTECTION
This limits the price as a percentage of the last traded price. It is useful while trading in volatile stocks
Eg: You place an order for shares at 100/-, but by the time it is received by the system, the price rises to 106/-. In a market order, you will get shares at 106/-, but if you opt for 2% MPP, the order will not be executed if the price rises above 102/-.
B.2 SL LIMIT ORDER (SELL)
The stop loss order can also be set if shares have been bought.
Eg: An investor buys 100 shares at 175/- and sets a stop loss at 173/- with a limit of 170/-. The shares will not be sold if the price falls below 170/-.
B.3 SL LIMIT ORDER (BUY)
A limit order specifies the price at which the shares are to be purchased (or sold) after the stop loss is triggered.
Eg: If the limit for Axis Bank was set at 1107/-, the order would be executed between 1105/- (the trigger price) and 1107/- (the upper limit). If the price rises to 1110/-, the order will not be executed. Limit order gives the trader some control over the price, but the purpose is defeated if the price moves beyond the defined threshold.
B.4 STOP LOSS MARKET ORDER
The stop loss is activated when the share price reaches the trigger price and is executed at the prevailing market price. The investor has no control over the price at which the order is executed after it is triggered.
Eg: A trader short sells 100 shares of Axis Bank at 1100/- and sets the threshold price at 1105/-. When the price rises to 1105/-, the order is activated for immediate execution. However, if the price jumps to 1110 or more before it is executed, the order will be executed at 1110/-. Once the trigger is crossed, the trader has no control over the price.
These are trading barriers set up by the exchanges to prevent excessive speculation and panic selling, the circuits are activated when the market moves by over 10% and trading halts across the equity and derivative markets throughout the country. The circuits are currently applicable to two benchmark indices -- BSE Sensex and S&P CNX Nifty.
10% rise or fall in benchmark index
Before 1 pm => Trading halts for one hour
After 1pm but before 2:30 pm => Trading halts for 30 mins.
After 2:30 pm => Trading doesn't halt
15% rise or fall in benchmark index
Before 1 pm => Trading halts for two hours
After 1pm but before 2:30 pm => Trading halts for one hour
After 2:30 pm => Trading halts for the day
20% rise or fall in benchmark index
Trading suspended for the rest of the day.