Market, Limit and Stop Orders
1. Every order answers two questions
How many shares do you want to buy or sell?
Under what price condition should the exchange attempt execution?
2. Market order
A market order seeks immediate execution against available orders.
It offers speed but not a guaranteed price. In liquid shares the difference may be small; in illiquid or fast markets it can be substantial.
3. Limit order
A buy limit sets the maximum price you will pay. A sell limit sets the minimum price you will accept.
A limit order protects the price boundary but does not guarantee execution.
4. Example: buy limit
A stock trades near Rs 500. You place a buy limit at Rs 495.
The order executes only if compatible sellers become available at Rs 495 or lower. If price rises without touching your level, you receive no shares.
5. Example: sell limit
You own shares and place a sell limit at Rs 550.
The order needs compatible buyers at Rs 550 or higher. A quote on the screen does not guarantee enough quantity for your full order.
6. Stop order
A stop order activates when a specified trigger condition is reached.
It is commonly used to enter after price confirmation or to reduce loss after an adverse move.
7. Stop-market vs stop-limit
A stop-market instruction becomes a market order after the trigger, prioritising exit but not price certainty.
A stop-limit instruction becomes a limit order after the trigger, controlling the acceptable price but risking non-execution.
Exact order names and availability vary by broker and exchange.
8. Trigger price is not guaranteed execution price
If a stock gaps below a sell trigger, the next available price may be much lower.
The trigger starts the order process; it does not create a buyer at the trigger level.
9. Day and other validity conditions
A day order is active for the trading session and expires if unexecuted.
Other validity or disclosed-quantity features may exist depending on the broker and exchange. Beginners should use only features they fully understand.
10. Price bands and tick size
Orders must respect the permitted price band and tick size for the security.
Tick size is the minimum allowed price increment. Exchange and surveillance rules can restrict order placement.
11. Stop losses are risk tools, not guarantees
A predefined exit helps control normal adverse movement.
It cannot guarantee the exact loss during gaps, illiquidity, circuit conditions or technical failure.
12. Common beginner mistakes
- Using a market order in an illiquid stock
- Available depth may cause major slippage.
- Setting a limit too far from the market unintentionally
- The order may execute immediately at a very different intention or remain pending.
- Assuming stop price equals execution price
- A trigger does not guarantee a counterparty.
- Forgetting pending orders
- An old order may execute later when conditions change.
13. Order comparison
14. DStreet principle
Choose order type based on liquidity, urgency and risk - not habit.
15. Beginner checklist
- I know whether I prioritise price or immediate execution.
- I understand the trigger and limit fields.
- I check pending orders before leaving the terminal.
- I do not assume any stop guarantees the exact exit price.
16. Quick knowledge check
Question: Does a market order guarantee price?
Answer: No.
Question: Does a limit order guarantee execution?
Answer: No.
Question: What happens when a stop trigger is reached?
Answer: The specified follow-up order is activated.
Question: Why can a stop-limit fail to exit?
Answer: The market may move beyond the limit without a compatible buyer.
17. Next lesson
Bid, Ask, Spread and Slippage.