Limit Order refers to the buy or sell order with a limit price.In Limit order there is a cap on the buy price or the sell price.Lets explain it with an example –
Reliance limited is currently trading at Rs. 1025.You want to buy it below Rs. 1020 level and want to place a order at the moment.
So you place a limit order with buy price as Rs.1020 and trigeer price at 1021.
Now the Order remains pending till the price is above Rs.1021.
Once it comes to Rs.1021 level your order is place in the market and once stock price reached to 1020 the order is executed as well.
You might get the price below 1020 depending on the market price but in no way it’ll be more than the Limit Price 1020.
However if the stocks price does not reached the trigger price level (In the example 1021 ) the order might not be placed as well.
Vice versa is the case with Limit Sell order.Limit order can be used to set stop loss(we’ll try to explain Stop loss concept in another article)
In Market Order the order is executed as you place the order and the stocks are brought or sold at the market price.So if you place the order when the stock is trading at 1025, your order will be executed and you will get almost the same price.
Limit Oder VS Market Order
|Limit Order||Market Order|
|You have to specify the buying or selling price.||You do not have to specify any price and order is executed at market price.|
|Order is submitted when the price level reaches trigger price||Order is submitted instantaneously and executed as well.|
|Can be used to set stop loss.||Cannot be used to set stop loss.|