Basic of the Stock Market - Part 2

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Wall Street caps best week since 1974 on latest Fed stunner - The Economic Times

As a build up to my previous blog which was also on the Stock Market, I will be explaining the various types of Orders for buying shares, the notion of Intraday Trading and a very important concept for traders which is Short Selling.

Types of Orders

There are various types of orders which an investor can place to buy shares. They are: 

Limit Order(LO) - Usually, an investor buys shares at their current market price. However, if the share's market price is at ¥500 and the investor wants to buy it at ¥475, he can place a Limit Order; following which, the order will get executed only when the market price drops to ¥475. 

Market Price Order(MPO) - This is an order where the buyer/seller is ready to execute the order at the current market price.

After Market Order(AMO) - In India, investors can trade/invest in the stock market from 9:30 A.M till 3:30 P.M. However, if an investor wants to buy/sell shares after the market hours, he can place an AMO. However, the order will only get executed when the market hours begins the next day.

Immediate Or Cancelled(IOC) Order - It is an order where the investor wants to immediately execute his order. However, supposing he is trying to buy shares and no other investor is selling them, the IOC order will immediately get canceled.

Stop Loss Order(SLO) - It is an order placed by the investor where if he buys a share for ¥500 and does not want to lose more than ¥30, then he can set his stop loss at ¥470. Thereby, if the market price of the share drops to ¥470 or below, then all the shares bought will automatically be sold off.

What is Intraday Trading?

Intraday Trading, also known as Day Trading, is a concept where a trader buys and sells shares within the same day. These traders are also known as Speculators. Intraday Trading can be both profitable and risky by a number of factors. Intraday Trading is a good option if the speculator is looking to make quick money. Furthermore, Intraday Trading can be extremely profitable in a stable and rising market. However, the biggest drawback to it is the volatility of the stock market. The prices of shares can fall quite drastically within a single day itself! Therefore, if you are going to do Intraday Trading, I highly suggest that you analyze all risks and invest small amounts of money at the beginning.

Short Selling

Short Selling is a very important concept for speculators. This is a slightly advanced topic but can bring good profits. If an investor holds stocks worth ¥500 and has an intuition that the market is going to fall, he can sell it them at ¥500. Then, following the market and price drop, the investor can buy the same shares for a much lower price. Thereby, not only has he received the ¥500 by selling the shares, he can look for future profits because he bought the exact same shares for a lower price. As you can see, this is the exact opposite of the usual procedure to buy/sell shares. However, the obvious drawback to Short Selling is the fact that the market can also rise after the investor had sold his shares. This can lead to huge losses depending on the price and volume(number) of shares the investor would have sold.

I hope you have gained a basic understanding of the Stock Market. If you would like to learn more, I would highly recommend you please check out this YouTube channel called: CA Rachana Phadke Ranade(link: https://www.youtube.com/user/rachanaphadke). She explains all these concepts and much more in a detailed manner. Thank you for reading😀

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