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In every trading market, everyone comes with their own set of expectations regarding what prices they’re willing to trade. Sometimes, these expectations might not align with the current market prices. That’s where different options come into play. One such option is “away from the market,” wherein traders can set a limit in order to execute trades at their expected prices.
In this article, we’ll delve into what away from the market orders are all about and how they are useful for traders.
What does away from the market mean?
When we talk about “away from the stock market” orders, we’re referring to a specific type of limit order used in trading. With this kind of order, the price you set for buying or selling a security is different from its current market price.
If you’re looking to buy, your set price is lower than what the security is currently going for. But if you’re selling, your set price is higher than the current market price.
For the execution of your order, the price of the security has to move in the direction you want.
Let’s break it down further:
- If you’re buying, your order price is below what the security currently costs.
- If you’re selling, your order price is above the current market price.
But why bother with this? Well sometimes, investors believe the market prices will shift in their favour, so they set these away-from-the-market orders. It’s kind of like bargaining while trading.
However, these orders can affect the spread between buying and selling prices, potentially making it wider. So, while away-from-the-market orders can be useful, they also come with their own set of considerations.
How does away from the market work?
After understanding its meaning, now let’s focus on how does away from the market works.
This is how they work: You, as a trader, inform your broker what price you want to buy or sell a certain amount of shares for, and for how long you want this order to stand. This type of order gives you more control because you set the price and the timeframe within which you’re willing to trade.
Your broker will try to execute your order as soon as the stock hits your specified price. But, it’s not a guarantee. Sometimes, even if the stock hits that price, your order might not go through right away because other orders are waiting in line.
Your order stays active until it hits your set price or you cancel it. It’s like trading with a safety net—you know the price won’t go above what you’re willing to pay, or below what you want to sell for.
Example of away from the market order
Now, let’s put the concept of an away from the market order into a real-life scenario to make it clearer. Imagine you’re interested in buying shares of Infosys Limited (INFY), a leading IT company in India. Currently, INFY is trading at INR 1,500 per share.
After conducting thorough research and analysis, you determine that INR 1,450 is the optimal price to enter the market. So, you put a limit order to purchase 200 shares of INFY at INR 1,450 per share.
If the share price of INFY never reaches INR 1,450, your order will remain pending until you decide to cancel it. However, if the price does fall to your specified level, your broker will execute the buy order for 200 shares at INR 1,450 each.
By using an away from the market order in this scenario, you can enter the market at a price that aligns with your investment goals.
Pros and cons of away from the stock market order
| Pros of away from the market | Cons of away from the market |
|---|---|
| It gives investors control over price, quantity, and execution time | There is a high chance of the order remaining unexecuted |
| It is ideal for targeting specific prices based on research | The securities may never reach the desired price level |
| Quite suitable for immediate action when the price hits expected levels | Brokers can partially execute the order due to a first-come-first-serve basis policy |
| It allows investors to buy/sell at target prices | The unfilled orders can increase the bid-ask spread |
| The orders remain open until the specified limit or cancellation | The order may not be executed at the current prices |
| There is potential for better-than-expected execution prices | The order volume may affect the allotment of shares. |
Conditions for the execution of away from the stock market order
When you place an away from the market order, it’s usually open-ended unless you specify otherwise. But you can add certain conditions to your order for how and when it should be executed. Some common conditions include-
- Fill or Kill (FOK)- This means the order must be completed immediately or cancelled altogether. It should either be filled or cancelled (killed).
- Good-’til-cancelled (GTC)- Here the order will stay active until it’s executed or unless you decide to cancel it. This is the default setting for all away from the market orders.
- Immediate or Cancel (IOC)– With this, the trader can choose a part or all of the order to be executed immediately. Here if any part isn’t filled right away it is cancelled.
- All or None (AON)- As mentioned above, this one’s straightforward – either the whole order goes through or none of it does. There’s no in-between with partial fulfilment.
Conclusion
An away from the market order allows investors to set specific price targets for buying or selling securities, diverging from the current market price. This strategic tool empowers investors to trade based on their research and analysis, offering greater control over their investments. To learn more, read blogs on StockGro.
FAQ’s
An away from the market order is a type of limit order where the specified execution price differs from the current market price of a security.
No, not all away from the market orders get executed; they only execute if the market price reaches the specified price set by the investor.
Investors should consider several factors, including their research and analysis of the security, their desired entry or exit price, market volatility, and the likelihood of the market price reaching their specified level within the chosen timeframe.
Typically, brokers may charge additional fees or commissions for placing away-from-the-market orders, similar to other types of limit orders.
While away from the market orders offer flexibility, investors should be aware of certain restrictions. These may include minimum or maximum quantity requirements, restrictions on the duration the order can remain active, and limitations imposed by the brokerage firm or exchange where the order is placed.