There are four major order types.
A limit order is one of the order types in which the price is specified by the trader. Once the price has been triggered by the market, an order will be placed at this price.
Advantage: A limit order ensures that you cannot be filled at a price worse than the price specified by you.
Consequence: Does not guarantee a fill.
Example: Assume you want to buy 100 shares of Reliance Equity at Rs. 2000. You place a limit order for Quantity 100, Price Rs. 2000. As soon as the market is trading at Rs. 2000 or lower, your trade will be sent. Your order will only be filled at a price of Rs. 2000 or lower; otherwise it will remain in the order book as a buy order waiting to be filled at Rs. 2000 until a seller matches the price with a corresponding sell order, or until you cancel the limit order.
A market order is of of the order types in which you are guaranteed to be filled at the best price available at the time. As soon as you submit a market order, it gets sent to the exchange and you are guaranteed to get the prevailing market price. A market order ensures that you will be filled.
Consequence: You cannot specify the price at which you want the order to be filled.
Example: Assume you want to buy 100 shares of Reliance Equity. You place a market order for Quantity 100. The current market price is 2000, but by the time your order reaches the exchange and is matched with a seller, the market has moved to Rs. 2000.50. You are filled at Rs. 2000.50.
A SL Order is a Stop Loss Limit Order. This is an order for exiting a position, in which the price is specified by the trader. Once the price has been triggered by the market, an order will be placed at this price to exit your position. A SL Limit Order ensures that you cannot be filled at a price worse than the price specified by you.
Consequence: Does not guarantee a fill.
Example: Assume that you are long 100 shares of Reliance Equity, and you wish to exit the position if the market trades at Rs. 1975. You place a Sell Stop Loss Limit Order for Quantity 100 at Price 1975. As soon as the market is trading at Rs. 1975 or lower, your trade will be sent. Your order will only be filled at a price of Rs. 1975 or higher. Otherwise, it will remain in the order book as a sell order waiting to be filled at Rs. 1975 until a buyer matches the price with a corresponding buy order, or until you cancel it.
A SL Market Order is a Stop Loss Market Order at which you specify the exit trigger price. This is an order for exiting a position, in which you are guaranteed to be filled at the best prevailing price after the price gets trigger. A Stop Loss Market Order ensures that you will be filled.
Consequence: In a Stop Loss Market Order you cannot specify the best price at which you want your order to be filled.
Example: Assume you are long 100 shares of Reliance Equity, and you wish to exit the position if the market trades Rs. 1975 and you want to ensure that you are completely filled on the trade. You place a Stop Loss Market Order for Quantity 100 at Price Rs. 1975. As soon as the market is trading at Rs. 1975 or lower, a Sell Market order is sent for Quantity 100. 100 shares of Reliance are guaranteed to be sold at the best prevailing market price, but you can get filled at a price worse than Rs. 1975.
Know more about online trading in our trading basics section.
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