You can use limit orders to execute trades quickly like market orders while protecting yourself from unfavourable price movements. Place buy limit orders above the current market price or sell limit orders below the current market price to achieve immediate execution with built-in price protection.
Why use limit orders instead of market orders?
Market orders execute immediately but may fill at unexpected prices, especially when liquidity is low or you place large orders. You might pay more than expected for a buy order or receive less than expected for a sell order.
Limit orders execute only at your specified price or better, giving you complete price control. However, your order may not fill if the market doesn't reach your specified price.
How limit orders work as market orders
You can combine the speed of market orders with the price protection of limit orders by placing your limit price beyond the current market price.
Buy limit orders above market price
When you place a buy limit order at a price higher than the current market price, your order executes immediately like a market order whilst capping your maximum purchase price.
Example:
- ITC currently trades at ₹241.
- You place a buy limit order at ₹245.
- Your order executes immediately at ₹241 (or the best available price up to ₹245).
- If a sudden price spike occurs due to large market orders, you won't pay more than ₹245.
- This protects you from unexpected price increases whilst ensuring quick execution.
Sell limit orders below market price
When you place a sell limit order at a price lower than the current market price, your order executes immediately like a market order while protecting your minimum selling price.
Example:
- You hold Nifty 17500 CE, currently priced at ₹185.
- You place a sell limit order at ₹180.
- Your order executes immediately at ₹185 (or the best available price down to ₹180).
- If a sudden price drop occurs due to large market orders, you won't sell below ₹180.
- This protects you from unexpected price decreases whilst ensuring quick execution.
When to use this strategy
Use limit orders as market orders when you:
- Need quick execution but want price protection
- Trade in low-liquidity stocks where prices can gap significantly
- Place large orders that might move the market
- Want to avoid the price uncertainty of pure market orders
For stop-loss protection with similar benefits, you can use Stop-Loss limit (SL) orders, similar to Stop-Loss Market (SL-M) orders.