Understand market orders vs limit orders

1.6.1 · Stock-Market › Order Types & Mechanics

WHY hume order types ki zaroorat hai?

KYA problem solve kar rahe hain? Jab tum "buy" click karte ho, exchange ko do sawaalon ke jawab dene hote hain:

1. Kis price par fill karun?
2. Kab / kya fill karun bhi?

Ek order type simply exchange ko tumhari instruction hai ki in donon ke beech kaise trade-off karo. Market mein ek spread hota hai: buyers sabse zyada jo dene ko ready hain woh post karte hain (bid), aur sellers sabse kam jo accept karenge woh post karte hain (ask). Unke beech ka gap hi saari drama ki jagah hai.

Order Book — uske neeche ki machine

WHY yahan se shuru karen? Kyunki orders ko samjhe bina pehle book ko samajhna zaroori hai.

Limit order book ek sorted ladder hai:

• Ask side (sellers): sabse lowest ask se upar stack hota hai.
• Bid side (buyers): sabse highest bid se neeche stack hota hai.

Ek limit order is ladder mein ek resting rung add karta hai (yeh liquidity provide karta hai, "maker"). Ek market order ladder par chalta hai aur existing rungs khaata hai (yeh liquidity leta hai, "taker").

Market Order

HOW yeh fill hota hai — step by step. Maano tum BUY 300 shares MARKET bhejte ho aur ask side aisi dikhti hai:

• 100 @ 100.00 khaao → 100 done.
  • Yeh step kyun? Market order hamesha pehle best (sabse lowest) ask leta hai.
• 150 @ 100.05 khaao → 250 done.
  • Kyun? Pehla rung khatam; agli best par jao.
• 50 @ 100.20 khaao → 300 done.
  • Kyun? Sirf 50 bacha fill karna; agli level se lo.

Limit Order

"Or better" kyun? Ek BUY limit @ 100.00 khushi se 99.50 par fill hoga agar available ho — tumhare liye ek better price hamesha accept ki jaati hai. Limit ek worst-case bound hai, exact target nahi.

HOW yeh behave karta hai:

• BUY limit @ 99.90 jabki best ask 100.00 hai → abhi fill nahi hoga. Yeh bid side par ek naye rung ki tarah rest karta hai. Yeh tabhi fill hoga jab koi seller 99.90 par aaye.
• BUY limit @ 100.10 jabki best ask 100.00 hai → yeh marketable hai: yeh spread cross karta hai aur turant 100.00 par fill hota hai (tumhare limit se better). Koi bhi unfilled remainder 100.10 par rest karta hai.

Head-to-head

Worked Example 2 — khud ko protect karna

Tum ek thin small-cap khareedna chahte ho. Best ask 50.00, lekin wahan sirf 40 shares hain; agla ask 53.00 par jump karta hai. Tumhe 500 shares chahiye.

• Agar MARKET: 40 @ 50, phir 460 @ 53 → $\bar{p}=\frac{40(50)+460(53)}{500}=\frac{26380}{500}=52.76$. Ouch — jo tumne dekha usse 5.5% upar.
  • Yeh step kyun? Thin book → market order ek bade price gap se guzar jaata hai.
• Agar LIMIT @ 50.50: sirf 40 shares fill hote hain, baaki wait karta hai. Tumne 53 ki disaster avoid ki lekin sirf partial fill mila.
  • Kyun? Limit 50.50 se upar kuch bhi refuse karta hai. Price protect hua, execution sacrificed hua.

Lesson: thin books mein market orders dangerous hain; limit orders safety valve hain.

Worked Example 3 — fast-mover trap

Tezi se badhta hua stock, best ask 200. Tum BUY limit @ 200 place karte ho. Price fill hone se pehle 205 tak rocket ho jaati hai.

• Tumhara limit @ 200 kabhi fill nahi hota — market bhaag gayi.
  • Kyun? Koi bhi seller ab 200 accept nahi karega; tumhara rung poori book ke neeche aa gaya.
• Ek market order ~200–201 par fill ho jaata aur tum andar hote.

Lesson: momentum mein time-critical entries ke liye, limits tumhe platform par khada chhod sakti hain jab train chal jaaye.

Flashcards

Connections

• Order Book & Depth of Market
• Bid-Ask Spread & Liquidity
• Stop Orders & Stop-Limit Orders
• Slippage & Transaction Costs
• Maker-Taker Fee Model
• VWAP & Execution Algorithms
• Time-in-Force (GTC, IOC, FOK)

Concept Map