How to use limit order as a market order? (2024)

A trade that gets executed at a significantly distant price from the current market price is commonly referred to as a freak trade. These trades usually occur due to shallow market depth, which results in low liquidity. Another factor that can contribute to a freak trade is when a trade coincides with a large market order.

Placing a market order inherently carries the risk of potential losses due to a freak trade, while a limit order provides the advantage of price execution at a specified level, thus avoiding a freak trade but without a guarantee of order fill. However, combining the benefits of both order types is possible, allowing for the price protection offered by a limit order (eliminating the risk of a freak trade) while still enjoying the order fill guarantee typically associated with a market order.

Use limit orders as market orders.

When a buy limit order is placed with a price higher than the current market price, the limit order functions as a market order, offering market protection at the specified limit price provided.

Example Scenario

1. The current market price of ITC is ₹241, and a limit buy order is placed at ₹245.
2. Since the price is ₹241 and the intended purchase price is higher, the order will act as a market order and execute immediately.
3. Consequently, all quantities up to ₹245 will be filled.
4. In the event of a large market order coinciding with the order and causing a price spike, the limit order provides protection by capping the buy price at ₹245.
5. This ensures that the buy price does not exceed the specified level, offering a safeguard against further price escalation.

Similarly, when a sell limit order is placed with a price lower than the current market price, the limit order functions as a market order.

Example Scenario

1. Let's assume a long position is held on Nifty 17500 CE, with the current price standing at ₹185.
2. A limit sell order is placed at ₹180, despite the current market price of ₹185 being higher.
3. The order will function as a market order, executing immediately and selling all available quantities up to ₹180.
4. If a large market order coincides with the placed order and causes a price spike, the limit order acts as protection.
5. The sell price is capped at ₹180, preventing it from going lower and providing a safeguard against further price decrease.

To learn how to use Stoploss-limit(SL) order like a Stoploss-Market(SLM) order, see How to use Stoploss-limit(SL) order like a Stoploss-Market(SLM) order?

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