orders trading on stock exchange. trading on the stock exchange trading on stock exchange is only...

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Orders Trading on Stock Exchange

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Orders Orders placed for purchase of shares are called bid order Orders placed for sale of shares are called offer orders At KSE, orders have a validity of one day

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Page 1: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

Orders

Trading on Stock Exchange

Page 2: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

Trading on the Stock Exchange

• Trading on stock exchange is only via Brokerage houses (members)

• An investor is supposed to open an account with a broker with a minimum balance of Rs. 25,000 (e.g., KASB Securities)

• There are 200 brokers on the KSE, 152 brokers on the LSE and 120 brokers on the ISE.

• After opening an account, an investor can trade by placing orders through phone, or internet (e.g., KASB accounts)

Page 3: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

Orders

• Orders placed for purchase of shares are called bid order

• Orders placed for sale of shares are called offer orders

• At KSE, orders have a validity of one day

Page 4: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

Two types of orders

• Orders refers to selling (offer) and buying (sell) of shares on stock exchange.

• Broadly classified: Two types of orders– Market Orders– Limit Orders– Limit order has further two types (stop orders):• Stop Loss orders• Stop Buy orders

Page 5: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

Market Orders

• Market order is an order to buy or sell at the best price when the order reaches the trading floor.

• Market orders are executed immediately at the best current market price.

• If a market order is not completely fulfilled from the top limit order, it is fulfilled from the next limit order in the sequence

• The order is only valid for a day.

Page 6: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

Limit Order • An order to buy or sell at a specified (or better)

price.• The investor specify a particular price at which

he/she is willing to sell or buy the shares.• The bid and offer orders must match each

other for execution of a transaction. • Limit orders can not fulfil above or below the

price at which they are placed. • Pricing matching is necessary not the quantity.• First come, first serve rule applies

Page 7: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

Example of Limit Order

• 1. A bid order of 1000 shares of PTCL is placed with Rs.50 a share

• 2. Another investor bids 200 shares of PTCL at Rs. 50.60

S. No Bid Quantity Bid Price Offer Quantity Offer Price1 1000 50.00 - -

S. No Bid Quantity Bid Price Offer Quantity Offer Price

1 1000 50.00 - -

2 200 50.60

Page 8: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

• 3. An offer order 400 shares of PTCL is place at Rs. 52 (The transaction is not executed as the bid and offer price do not match each other)

• 4. Another investor places a bid order of 300 shares at Rs. 50.60 is placed

S. No Bid Quantity Bid Price S. N0 Offer Quantity Offer Price

1 1000 50.00 1 400 52

2 200 50.60

S. No Bid Quantity Bid Price S. N0

Offer Quantity

Offer Price

1 1000 50.00 1 400 52

2 200 50.60

3 300 50.60

Page 9: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

• 5. Someone offers 200 shares of PTCL at Rs.50.60 a share (WHICH SHARES - S.NO 2 or S. NO 3???)

• 6. An investor is willing to sell 400 of PTCL shares at Rs. 50.60

S. No Bid Quantity

Bid Price S. N0

Offer Quantity

Offer Price

1 1000 50.00 1 400 52

2 300 50.60

S. No Bid Quantity

Bid Price S. N0

Offer Quantity

Offer Price

1 1000 50.00 1 400 52

2 100 50.60

Page 10: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

• 7. An offer order of 600 shares of PTCL at market order is placed

• 8. A bid order of 500 shares of PTCL is placed at Rs. 50.50 per share.

S. No Bid Quantity

Bid Price S. N0

Offer Quantity

Offer Price

1 400 50.00 1 400 52

2 100 50.60

S. No Bid Quantity

Bid Price S. N0

Offer Quantity

Offer Price

1 400 50.00 1 400 52

2 500 50.50 2 100 50.60

Page 11: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

• 9. A offer order of 700 shares of PTCL is placed at market price.

• 10. A bid order to buy 300 shares of PTCL at market is placed

S. No Bid Quantity

Bid Price S. N0

Offer Quantity

Offer Price

1 200 50.00 1 400 52

2 100 50.60

S. No Bid Quantity

Bid Price S. N0

Offer Quantity

Offer Price

1 200 50.50 1 200 52

Page 12: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

Limit Order

• Bid orders with highest bid price are placed at the top

• Offer orders with the lowest offer prices are placed at the top

• Orders with similar prices are sorted on the basis of first come first serve

Page 13: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

Limit Orders (Stop Orders)• Stop-Loss Order:– The share has to be sold if its price falls bellow specific

level– It is used to avoid unexpected losses– Also useful in very volatile (uncertain) markets– For example, on the KSE, there is a cap of 5% fluctuation

above and below the beginning share price on a day. Now, an investor can place stop-loss order at 2% and avoid the 3% loss, if anything abnormal happens with the stock

– For example, a share price of Rs. 100 can be dropped down to Rs. 95; so the investor can stop at the order at Rs. 98 to avoid the Rs. 3 further fall in the prices.

Page 14: Orders Trading on Stock Exchange. Trading on the Stock Exchange Trading on stock exchange is only via Brokerage houses (members) An investor is supposed

Limit Orders (Stop Orders)

• Stop-Buy Orders: – Specifies the price that a share should be bought

when price of a security rises above a stipulated limit– It is usually used with short-sell to limit possible

losses from short position– For example, on the KSE, a share of Rs. 100 may

increase upto Rs. 105; in the case, an investor may place a stop-buy order of Rs. 103 in order to avoid Rs. 2 further increase.