With the advent of online trading systems many investors are now preferring to buy and sell shares themselves.

They are doing their own research and finding it convenient and exciting mode of earning money. However, before you start trading online, it is desirable to learn fundamentals of placing orders.

Market order is the order to sell or buy immediately at market price. This order guarantees immediate execution of order. Such order is placed when a trader is interested to sell or buy a stock immediately. Buy order may be executed near ‘ask’ price and sell order may be executed at ‘bid’ price.

However, last traded price is not necessarily the price at which the trade will be executed. In highly volatile market conditions price of execution may differ from last traded price. Market orders are popular among investors who want immediate execution of a trade, especially under uncertain market conditions.

Limit orders sets a maximum or minimum price of sell or buy. As for example, in a falling market you are expecting a stock price to fall at $10 from $12. You set a limit order of buying 100 shares at price $10. If the price falls at $10 only then your order will be executed.

While placing a limit order you need to be careful about the costs involved. Typically a limit order turns out to be more expensive than market order due to higher commission charged by brokers. Limit orders are usually taken to limit risk but it may also mean lost opportunity. Take the above example, if price of the selected stock bounce back from $10.10 the buy order may not be executed. Similarly if the price falls below $10 then the buyer may lament.

Stop loss order is used by traders for limiting or minimizing loss. While a limit order gets active as soon as it is placed, stop loss order remains dormant until the specified price is reached. At that price, the stop loss order is converted to market order and gets executed. This type of order is recommended in highly volatile market or when you are not able to keep vigil on price movement.