Market orders and limit orders

In simple terms

When you buy or sell shares, you send an order to the exchange through your broker. The two basic order types answer a simple question: what matters more to you right now, getting it done or getting your price?

• A market order says: buy (or sell) now, at the best prices currently available. It is executed immediately as long as there are orders on the other side, but you do not know exactly what price you will get.
• A limit order says: buy at this price or lower (or sell at this price or higher). You know the worst price you can get, but the order may not be executed at all.

How a market order is filled

A market order is matched against the best waiting orders on the other side of the order book. If the best order is too small to fill it, the rest of your order moves on to the next best price, and so on.

How a limit order is filled

A limit order sets a boundary.

• A buy limit at ₹100.60 means "buy at ₹100.60 or less". In the order book above, it would immediately buy the 200 shares offered at ₹100.50, and nothing more, because the next seller wants ₹100.80. If you asked for 500 shares, the remaining 300 would wait in the order book at ₹100.60 until a seller comes down to that price.
• A sell limit at ₹105 means "sell at ₹105 or more". If buyers are only bidding ₹100, the order waits.

When only part of an order is executed, it is called a partial fill. The rest stays in the order book until it is filled, cancelled by you, or expires.

How long does an order last?

Orders also have a validity. The most common is a day order, which is cancelled automatically at the end of the trading day if it has not been filled. Many apps also offer immediate or cancel (IOC) orders, which fill whatever they can at once and cancel the rest. Check what your broker's app uses by default.

Choosing between them

Why it matters

The order type decides what you actually pay or receive. Many beginners place market orders without looking at the order book and are surprised to buy at a noticeably higher price than the one they saw. Others place limit orders and wonder why nothing happened. Understanding both makes you a more deliberate buyer and seller.

It also protects you in thinly traded shares, which are often the ones promoted in tip groups. A market order in such a share can execute at a shockingly bad price, and that is exactly the situation some manipulators rely on.

Limitations

This lesson covers the two basic order types. Brokers also offer others, such as stop-loss orders, which become active only when the price reaches a trigger level, and orders placed after hours that are sent to the exchange when it opens. Their exact behaviour varies between brokers and segments, so read your broker's description before using them.

Even a limit order does not protect you from a bad decision. It controls the price of execution, not whether buying at that price is wise.

Common mistakes

• Assuming the last traded price is what a market order will pay. Your order trades against the orders waiting now.
• Using market orders in thinly traded shares. The average price can be far worse than expected.
• Setting a limit order and forgetting it. A forgotten order can be filled later, when you no longer want the shares.
• Chasing the price. Repeatedly cancelling and raising a buy limit order in a rising share often ends with a worse price than a calm decision would have produced.

Try it yourself

Use the order book in the example above (asks of 200 at ₹100.50, 150 at ₹100.80 and 300 at ₹101.20).

1. What happens to a limit order to buy 300 shares at ₹100.80?
2. What is the average price of a market order to buy 650 shares?

Answers: 1. It buys 200 shares at ₹100.50 and 100 at ₹100.80, so it is fully filled at an average of ₹100.60. 2. It takes every share on offer: ₹20,100 + ₹15,120 + ₹30,360 = ₹65,580 for 650 shares, an average of about ₹100.89.