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What are limit and market orders?

Limit Orders

A limit order allows you to buy or sell a stock at the price you have set or a better price. 

In other words, if you place a buy limit order at Rs 92, you want to buy the stock from the exchange only at Rs 92 or lower. You don't want to pay more than Rs 92. Similarly, if you place a sell limit order at Rs 95, you want to sell the stock at Rs 95 or higher.

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 partially or completely depending upon if a counter order is available for some quantity or none at the price you’ve specified. 

Market Orders

A market order allows you to buy or sell a stock at the best available price. 

If you're placing a buy market order, you want to buy a specified quantity of stock from the exchange at any price available. Similarly, if you're placing a sell market order, you want to sell your stock at any price buyers are willing to give. 

The advantage of market orders is that your trade will execute as soon as it reaches the exchange if there are willing counterparties i.e. buyers for your sell market order or sellers for your buy market orders. However, the instant order execution comes at the cost of slippage (which means you could be paying slightly more money to buy or getting slightly less money to sell your stocks).

Important points:

  1. Limit orders placed at Rs 0 will be rejected on Kite. Earlier, a limit order at Rs 0 was placed as a market order on the exchange. 
  2. Your limit order will get executed as a market order if for your -
    • Buy limit order: limit price is more than the best offer price
    • Sell limit order: limit price is less than the best bid price