What are limit and market orders?
A limit order is an order to buy or sell a contract at a specified price. When you are buying, you instruct your broker not to go higher than the specified price. And when you are selling you instruct your broker not to sell below your specified price.
The advantage of placing a limit order is that you can place buy/sell order at the desired price. However, there is a chance that your order may not get filled as there not be a counter order at the exchange at the price you’ve specified.
- When placing Buy Limit orders, the limit price entered must be below the Current Market price
- When placing Sell limit orders, the limit price entered must be above the current market price
Ex - if the CMP of a scrip is 100, buy limit orders must be placed below 100 (95,99 etc), & sell limit orders must be placed above 100 (101,108 etc)
If the above rule isn’t followed, even limit orders will get executed as market orders.
A market order is an order to buy or sell a contract/stock at market prices. The price is not specified at the time of placing the order.
The buy market order gets executed at the price at which the seller is ready to sell and the sell market order gets executed at the price at which the buyer is ready to buy.
The advantage of the Market Order is that the order will definitely be executed all the prevailing market rate, however, the trader might end up paying slightly more or selling at a slightly lower price. (i.e slippage)
Note: Effective June 28, 2019, Limit orders entered at 0 will get rejected on Kite(Previously, these orders used to get executed as a Market order)