InvestorQ : Can you throw some light on how I should go about placing orders in the stock market?
Arya Nanda made post

Can you throw some light on how I should go about placing orders in the stock market?

Deepa Salunkhe answered.
2 years ago

An order is not a trade. When you place an order and it gets executed (finds a buyer / seller) then it becomes a trade. Here is what you need to know about placing orders in the stock market system.

Can I place orders in the pre-market session?

The pre-market session is only for price discovery and for giving an indication of how the markets will actually pan out. You cannot place orders during the pre-market session. Even if you place an order in the pre-market session, they will get executed only after the actually trading starts after 9.15.

Do I need to use stop loss while trading?

A stop loss is meant to protect your downside risk. When you are trading it is always advisable to put a stop loss as market volatility can wipe out your capital quite fast. We always suggest that it is advisable to trade with a stop loss.

At what level should I book profits on my positions?

That entirely depends on your outlook for the stock and your waiting capacity. Ideally we suggest you talk to your financial advisor or broker to get a clear idea of the right time to exit the stock. In trading booked profits is more important than mere book profits.

Once I place an order in the system, can I modify the same?

Yes, you can modify or even cancel the order provided the order has not been executed. Once the order is executed by the system, you can neither cancel nor modify the order. Hence you need to double check before placing an order.

Should I rely on fundamental analysis or technical analysis to buy and sell stocks in the market?

Both these techniques have their own utility. For example, fundamental analysis helps you to identify what stocks are underpriced. On the other hand, technical analysis allows you to identify at what level to enter and exit the stock. A combination of both the approaches is advised.

I recently saw 200 shares of Wipro available at my required price and placed an order for 500 shares. Surprisingly, the entire order for 500 shares got executed. How is it possible?

There could be three possible reasons for this. Firstly, there may have an additional sell order exactly at the same time when you executed your buy order for Wipro. Secondly, there are algorithms that sweep away whatever buy orders are available and may be visible only for a split second. Lastly, the most likely reason could be that the 200 shares may be a hidden order. A trader is allowed to place an order with just 10% size disclosed. The 200 shares you saw could actually be a hidden order for 2000 shares with just 200 shares disclosed. That could be the reason why your order for 500 shares got executed instantly.

I used to trade in the BSE in the old days where we used to trade in Badla. We used to hold the position for 5 days and then square it off. Is that possible today?

Badla (Carry Forward) system was banned by SEBI in 2001. At the same time, SEBI introduced trading in futures & options and also shifted to the rolling settlement. Under the rolling settlement system you can only take trading positions for a single day or it goes into delivery.

I was told that instead of buying in the cash market, I can buy in futures at a fraction of the investment. Is that correct?

You need to understand futures trading in the proper perspective. In futures you pay a margin of around 20% of the value. For example if you buy 500 shares of Reliance at Rs.1000, you will have pay Rs.500,000 to your broker by end of the day. If instead you buy 1 lot of futures consisting of 500 shares, then you need to put a margin of Rs.100,000. So your upfront investment is lower and therefore your return on investment can be higher. However, you need to be aware that just as profits can be higher, your losses can also be higher and hence strict stop losses are a must.

Are there any equity schemes in the market that assure returns over a period of 1 year?

Firstly, SEBI does not permit brokers, mutual funds and PMS to assure returns considering that equity investments are highly volatile. Secondly, it is not possible to assure returns considering that there is huge volatility in equities. However, it has been observed that equities do outperform other asset classes over the long run.