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Types of orders used when buying or selling a stock

 
TRADING HYPE

1. Exaggerated Advertising Claims
Claims such as "Trade with No Risk!", "Proven System!", "Guaranteed Six Figure Income Trading at Home!", and similar claims should set off loud alarm bells. Day trading always involves risk, there are no proven systems that always work, and profits are by no means guaranteed.

2. "Hot Tips"
Be very wary of any "hot tips" and "hot inside scoops or information" that you may encounter on Internet bulletin boards, chat rooms and newsletters aimed at day traders. These sources of information often come from "pump and dump" specialists.

3. Common Sense
Your best protection, is ,of course, to simply apply common sense and a dose of skepticism when considering the purchase of a day trading product or service.

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MONEY MANAGEMENT


There is a so-called "rule of thumb" in the trading world which states that you shouldn't risk more than x% (generally 2-10%)  of  total trading capital on any one trade. Doing so ensures you can make many bad trades and still have enough capital to trade. Despite this general rule of thumb, many traders will define their maximum risk tolerance level differently. High risk traders would risk higher percentage of capital on a single trade while low risk traders would risk lower percentage of capital on a single trade.


There is an old adage about cutting ones losses and letting profits run. What this means is that you should strive to keep your losses manageable, and ensure that no single trade does too much damage. The thinking here is that if you keep the losses small, the profits will take care of themselves.
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TYPES OF ORDERS

There are several different types of orders you can place when buying or selling a stock. The following briefly describes the more frequently used orders.


Market Orders

This is an order to buy or sell a specific number of shares at the best price available at the time the order is routed to the trading floor. Because market orders are normally executed immediately at the current market price after they have been routed to the relevant exchange, these orders are almost always filled within a very short period of time. However, because a market order cannot specify a price for the shares, the actual price at which the order will be filled will be unknown until the order is executed. Consequently, if the market price of the shares is rising quickly, a market order may be filled at a higher price than that quoted at the time the order was sent to the customer's broker for execution. Accordingly, if one wishes to buy or sell shares at definite price, a market order should not be used.


Limit Orders

Unlike market orders, a limit order permits you to specify the lowest or highest price at which you will sell or buy a specified number of shares. A limit order guarantees the price at which you will be filled, but it does not guarantee you an immediate execution - or whether your order will be filled at all. There are two main reasons for this. First, if you place a limit order to buy a stock at Rs 50.00 and the current market price is Rs 60.00, you will not be filled until the price drops to Rs 50.00 or less, which may never happen. Secondly, market orders take priority over limit orders. Consequently, even if you place a limit order to buy a specific stock at the current market asking price, you may not get an immediate fill if there are numerous unfilled market orders ahead of your limit order. In fact, you may not get filled at all if, after the outstanding market orders are filled, the price of the stock goes higher - above your limit price.


Stop Loss Orders

A stop loss order is an order to sell a stock at a price below the current market price. For example, suppose that you have just bought 1000 shares of XYZ at Rs. 50.00. You decide that you only want to risk Rs.5.00 per share on this transaction. Accordingly, you immediately place a stop loss order at Rs.45.00. This means that if the price of XYZ should drop to Rs.45.00, your broker will sell your 1000 shares at a market price of (or close to) Rs45.00. The use of a stop loss order will therefore pre-determine the maximum loss a trader will incur.


Fill-or-Kill Orders

An order to buy or sell a specified number of shares that is routed to the trading floor for immediate execution. If the order cannot be immediately filled, it is cancelled (killed) automatically. Note that the order must be filled in its entirety. Partial fills are not allowed.


Duration of Orders

Good for the Day
This condition specifies that the order is good for one trading day. Order expires if it is not filled by the end of the day.
Good Until Cancelled
This condition specifies that the order is good until it is either executed or cancelled by the customer.
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