What is market order and limit order in trading?

What is market order and limit order in trading?

Difference Between Market Order and Limit Order 

A single intraday trading order in NSE market is either a buy order or a short sell order. An order can be used either to enter an intraday trade or to exit a intraday trade. If a trader takes up a position with a buy order, then he will exit his position by a sell order.  Also if the day traders enter the trade with a sell order thinking that the stock will go down, then his short sell position will be square off by placing a buy order of the particular stock.  All stock market either buying or selling transactions are subject to the availability of stocks and can vary significantly based on the timing and size of the order and the liquidity of the stock in the NSE Market. When intraday traders want to either buy or sell a stock, he can do the same either by placing a Market order or a Limit order in NSE market. 

Market orders:  Market orders places by traders will be executed at the best available price in the NSE market, however the execution time of the orders and the price is not guaranteed.  Market orders are used when you definitely want your order to be processed, and are willing to risk getting a slightly different price. If you are buying, your market order will get filled at the ask price, as that is the price someone else is currently willing to sell at. If you are selling, your market order will get filled at the bid price, as that is the price someone else is currently willing to buy at. Traders cannot place Market orders outside the market trading hours or when trading in a particular stock is halted or suspended for any reasons. A market order that is placed after trading hours will be filled at the market price on open the next trading day.

How to Place a Market Order with example

While placing Market Order one needs to place specific quantity for buying or selling.

If a Day traders Rakesh wants buy 100 shares of Yes Bank .Stock is trading at Rs. 310. Rakesh thinks that stock price of Yes bank is in a definite uptrend and prices will go up immediately. To Do quick trading he should place a market order as he will get desired quantity at best possible price at that time in the nse market.

Risks of Market Order

The biggest risk of market orders is the execution at the desired price is not guaranteed. Stock price changes by every minute and second. In market order, one can get desired quantity but price can move and sometimes that’s disadvantage.

Limit orders: Limit orders allow you to set a maximum purchase price for your buy order, or a minimum sale price for your sell orders. If the market doesn’t reach your limit price, your order will not be executed.  Limit orders may or may not get filled depending upon how the market is moving, but if they do get filled it will always be at the chosen price, or better price.  You can place an ‘At Limit’ order during market hours. You can also place an ‘At Limit’ order when the market is closed and it will be queued ready for processing when the market opens.  Please note that an ‘At Limit’ order will not be accepted, without any advice to you, if we consider the limit price to be too far away from the prevailing market price of that stock

While the process of buying and selling stocks may be simple to a day trader but, knowing the differences between a market and limit order is very good to for day traders to make money in NSE market. A market order is can be used to executing the order at fastest speed, while a limit order place will always ensure that price at which you want to execute the trade is met before the trade is actually executed in NSE. 

One a Day traders has a adequate knowledge of the order types as above he can choose what stocks to buy, when to buy,  what price you want to buy it, how long to hold it, and very important when to exit from the said stocks by selling the same.

How to Place a Limit Order with example

While placing limit order one needs to place specific price for buying or selling. In case of buying your order will only get executed below or at the price you’ve specified (Limit) while placing likewise, while selling your order will get executed above or at the price you’ve specified.

Mr Rakesh wants to buy 100 shares of Hexaware. Stock is trading at Rs. 404. Trader Rakesh thinks that stock price will drag a bit from current level and bounce back again. If he puts limit order of 401 then when stock come to 401 his buy order will get executed.

Risks of Limit Order

The biggest risk of limit orders is that there is no guarantee of execution of the buy or sell order in NSE market. While in limit order you get control over price but not on the quantity of the stock. Sometimes, if may reach to your limit price but if there is other pending orders before your order, your order may not get execute? So if you have placed the limit order, you will be required to constantly monitor whether your order has been executed or not.

A Trader should himself take a decision, depending on whether he want the order to be executed quickly or at a specific price, accordingly he can placed the order in the NSE market via his trading terminal.

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