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Basic Terms in Trading – Stock Market Tutorial

Market Live brings in the Stock Market Tutorial explaining the basic and essential terms involved during Online Trading in the Share Market. Buy/Sell Orders, Limit Prices, Stop Loss Prices, Trigger Prices – All the Stock market Trading jargons are explained in a simple manner here.

How do I Buy / Sell Stocks with my Online Account ?

Buying or Selling stocks is done by placing ‘Orders‘. You can place a ‘Buy Order‘ to buy the stocks at a particular price. Similarly to sell a stock at a particular price, you have to place a ‘Sell Order‘.

Each Online platform has different ways to place these orders. But generally, all of these provide the following basic options when placing an order:

  • Option to choose whether you wish to Buy or Sell a particular stock
  • The name / symbol of the particular stock which you want to either Buy or Sell
  • The Number of stocks (Quantity) that you want to either Buy or Sell
  • The Price at which you would like to either Buy or Sell this stock.

After you have confirmed the order, it is placed in the Stock Exchange through the Online System. Your stocks are actually bought or sold once this order gets executed in the exchange.

What is a Limit Order / Limit Price ?

A Limit Order is a Buy / Sell order which you want to get executed at a pre-determined desired price. This is the most common type of order that investors and traders place in the market.

Buy Order with Limit Price

For example, if you want to buy the stocks of company ‘A’ at a price of Rs.300. However the current price of the stock might be higher than your desired price. But you feel that the price of this stock would come down sooner and reach Rs. 300. In such a case, you can place a Buy order with a limit price of Rs. 300. This means that you are instructing the system to buy the stocks of company A, only if the price reaches Rs. 300 or lesser.

So if a Buy Order gets executed with the Limit Price specified, then you could be assured that the actual price at which the stocks are purchased by you will always be either equal to or lesser than the Limit Price specified by you.

Sell Order with Limit Price

Similarly you may have the stocks of company ‘B’ in your demat account, which you would like to sell at a price of Rs.500. But currently the market price of the stock is lesser than 500 and you expect that sooner the price will reach Rs. 500. In such a case you can place a Sell order with a limit price set to Rs. 500. In this case, the stocks will be sold only if the price reaches Rs.500 or above.

So if a Sell Order gets executed with the Limit Price specified, then you could be assured that the actual price at which the stocks are sold by you will always be either equal to or greater than the Limit Price specified by you.


What is a Market Order ?

Market Orders are placed, when you are not concerned too much about the current price of the stock, but you want to get assured that the stocks are either bought or sold immediately. So a Market Order can be placed only during the Market Trading Hours. You cannot place a Market Order when the Markets are closed.

Market Order for Buying

For example, consider an instance where in you know the fact that company ‘A’ will be making a big announcement in the afternoon today and so the price of the stocks of this company will definitely rise after this event. So you are looking for buying this stock desperately now, irrespective of its current traded price. In such a case, you can place a ‘market order’ for this stock. This will place an order for buying the stocks at the Last Traded Price in the Stock Market. So the chances of buying the stocks increase, as you are trying to buy the stock very close to its Last Traded Price in the market.

Market Order for Selling

Similarly suppose that you know the price of stocks of company ‘B’ will go down later in the day when the company comes out with its Earnings report of Losses for the Quarter. So you would want to sell the stocks of this company immediately, before the price of the stocks fall drastically. In such a case, you can place a Market Order for Selling. This will place an order for selling the stocks at the Last Traded Price in the Stock Market. So the chances of selling the stocks increase, as you are trying to sell the stock very close to its Last Traded Price in the market.


 

 

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