Limit orders that are placed far away from the LTP are restricted to avoid freak trades. The price discovery process is an activity where prices are determined by the demand and supply of a security through the interaction between buyers and sellers via orders placed. Some traders place orders that are in no way related to the current market price of the contract, or place orders with prices that are far away from the last traded price. Trades placed at such unrealistic prices may lead to instability in the price discovery process, which may lead to freak trades.
To address this issue, Zerodha blocks limit orders for stock and index options that are placed 50% to 150% away from the last traded price (LTP). For stock and index options, this block applies only when you place a limit buy order 150% above the LTP or a sell order 50% below the LTP. However, this restriction does not apply if the LTP is below ₹100. If you wish to place a limit order outside of these limits, you can use GTT (Good Till Triggered) orders instead.
- For stock option contracts, Zerodha blocks trading completely for the near-month and the far-month contract if the LTP and the open interest are zero.
- For index option contracts, Zerodha blocks trading completely for the far-month contracts and long-dated contracts if the LTP and the open interest are zero.