Market Order: When a trader places a Market Order, the order is executed at the current market price, regardless of whether it’s a buy or sell order. The order is filled at the best available price in the market.
For example, if Ram wants to buy 100 shares of Indian Oil at ₹60 but the price has changed to ₹62 by the time he places the order, the Market Order will execute at ₹62. If the price falls, the order will be executed at the lower price.
Limit Order: A Limit Order is used when a trader sets a specific price and quantity for their buy or sell order. If the specified price is not reached, the order remains pending in the order book.
For example, if Ram wants to buy 100 shares of Indian Oil at ₹60 with a Limit Order and the price changes to ₹62, the order will only execute at ₹60, and no other price.
Stop-Loss Limit (SL) & Market (SL-M): A Stop-Loss order helps traders limit their losses if a trade goes against them. For instance, if a trader buys Tata Steel stock at ₹100, they can set a Stop-Loss order at ₹97. If the stock price falls to ₹97 or below, the Stop-Loss order will sell the stock at ₹97, even if the trader is not actively monitoring the trade.
A Stop-Loss Market Order is a variation where the last order is a Market Order. In this case, the trader sets a trigger price. Once the trigger is set, the order price cannot be changed, and it will be filled at the best available market price.
An issue that can arise with a Stop Loss Market Order is during unusual price fluctuations. For example, if a stock is priced at ₹100, and the trader has placed an SL-M order at ₹95, there is a chance of a sudden drop to ₹92 followed by a quick rebound to ₹101. In such a scenario, the SL-M order will trigger at ₹95, and the trader may incur a loss of ₹8 on the trade.