Market Order: Buying or Selling at the Best Price Now

A market order is an instruction to buy or sell a share straight away at the best price available in the exchange's order book at the moment the instruction is entered. The investor does not name a price, so the price at which the trade is completed is not fixed in advance.

Individuals asking what is a market order will find that it puts execution ahead of price. NSE defines it as an order to buy or sell at the best price obtainable when the order is entered.

On the NSE system, which is fully automated, the best buy order is matched with the best sell order, so the price received depends on the orders waiting at that time.

How a market order gets matched

NSE's system matches the order with the best waiting orders on the other side, first by price and then by time of entry.

If an investor buys 100 shares when the screen shows Rs 500, but only 60 shares are offered there, the rest will be bought at Rs 501, so the average price will be above the screen price.

SEBI requires the exchanges to set dynamic price bands, and orders beyond the band are rejected. For F&O-eligible stocks the band is 10% of the previous close, and the exchanges can flex it. Bands for individual stocks range from 2% to 20%.

The pre-open session from 9:00 am to 9:15 am accepts both limit and market orders.

Market order vs limit order

The investor sees a price on the screen, but the price received may be different, especially in thinly traded stocks, where few orders are waiting on the other side.

A market order does not guarantee a price. A limit order fixes the price the investor is ready to accept, though the trade may not execute if the market does not reach it.

Orders placed outside trading hours, called after market orders, are sent to the exchange when the market opens.

A stop-loss market order becomes a market order only once its trigger price is reached, and it then executes at the prevailing price.