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Understanding the difference between market order and limit order of shares

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There are only two types of orders that you can place when you buy and sell shares and stocks. It can either be a market order or a limit order.

 

What is a market order of shares

 

In India you can place a market order, which means the buy and sell orders that are placed will be at the current prevailing price and not at a pre-determined rate.

Let's give you an example. Say you wish to buy the shares of ICICI Bank and the current market price is Rs 1400 (buy quote) and Rs 1410 (Sell quote). As soon as you say buy at market order the shares will be purchased at Rs 1410, since that is the current market price and there is a seller available at Rs 1410.

 Understanding the difference between market order and limit order of shares
What is a limit order of shares?

In limit orders you determine at what price you want to sell and buy the shares. For example, if the current market price of Infosys is Rs 3800, but, you think it is too high, you can place an order to buy the share at Rs 3750.

If the share falls to Rs 3750, during the course of the day the shares would be bought. It's important to remember that should there be no sellers at Rs 3,750, the transaction would not be executed.

What are their drawbacks?

The limitations of a market order is that you are not sure whether you would be able to buy or sell the shares. If there is no seller at the purchase price you want, it may not be possible to purchase the shares.

On the other hand, if there is no buyer at the price you want to sell, it may not be possible to buy the shares.

These limitations may not happen in the case of market order of shares. But, sometimes it may not be advisable to go for market price of shares, since you may sell at a low rate and buy at a higher rate.

Conclusion

The issue of buying and selling at a market rate or at limit rates would depend on your own priorities. If you are desperate to sell the shares, then it is best you place a market order. On the other hand if you can wait for sometime, then go in for a limit order. In any case the order depends on your own needs and requirements.

GoodReturns.in

Read more about: shares market orders limit orders
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