Someone decides to buy a small company they have been reading about. The app shows ₹47. They want two thousand shares, they tap buy, they leave it as a market order because that is the default, and they confirm.
The contract note the next morning shows an average price of ₹49.80.
Nothing malfunctioned. Nobody overcharged them. They have simply seen how a market order can behave in a stock with low trading activity. In this example, the average price was close to six per cent higher than the displayed price.
This post is about the two order types, and about the one thing that decides which of them is safe.
The number on your screen is not an offer
This is the misunderstanding underneath almost every unpleasant fill.
The price displayed is the last traded price. It records the most recent trade. It tells you what traded, not necessarily what is available for your order.
What is actually available is a list of buy and sell orders, each at its own price and quantity. That list is the order book. It shows the prices and quantities available for your order.
In a heavily traded company, the order book is usually deeper. There may be buyers and sellers close to the last traded price, often in larger quantities.
In a lightly traded company, the order book can be thin. There may be two hundred shares offered at ₹47.05, then nothing until ₹48.20, then a small quantity at ₹49.50. The last traded price of ₹47 may tell you very little about what two thousand shares will cost.
The gap between buying and selling
At any moment there is a highest price someone will pay and a lowest price someone will accept. The difference is the bid-ask spread. It can affect the price at which your trade is executed.
If you buy and then sell immediately in a stock with a wide spread, you give up the spread even though nothing went wrong.
The smallest permitted price movement is the tick size. It sets the minimum price increment at which orders can be placed or prices can change.
It is not one number. Since April 2025 the NSE has used a graded scale, so the step gets larger as the price does.
Share price | Smallest price step |
|---|---|
Below ₹250 | 1 paisa |
₹250 to ₹1,000 | 5 paise |
₹1,000 to ₹5,000 | 10 paise |
₹5,000 to ₹10,000 | 50 paise |
₹10,000 to ₹20,000 | ₹1 |
Above ₹20,000 | ₹5 |
A stock trading at ₹12,000 therefore moves in one rupee steps, not five paise. The bands are reviewed monthly against the previous month’s closing price, so a share can move between them.
The logic is proportion. One paisa on a ₹40 share and one rupee on a ₹12,000 share are roughly the same fraction of the price, so the minimum possible spread stays broadly similar in percentage terms wherever you look. Stock futures follow the same bands as the share. Options are on their own scale.
The two order types
A market order says: buy now, at whatever it takes. It walks up the order book taking whatever is offered until your quantity is filled. You are guaranteed to trade. You are guaranteed nothing about the price.
A limit order says: buy at this price or better, and wait if you have to. You are guaranteed never to pay more than you specified. You are guaranteed nothing about trading at all.
That is the entire trade-off. Certainty of execution, or certainty of price. You cannot have both, and every argument about order types is really an argument about which one you can afford to give up.
Liquidity is the variable that decides
In a large, heavily traded company during ordinary hours, the book is deep enough that a market order fills within a paisa or two of what you saw. The convenience is worth more than the risk.
In a small company, or a large one at an odd moment, the book thins out and a market order becomes a promise to pay whatever the thinnest part of the book demands.
The useful habit is not to memorise a rule. It is to look at the depth before you decide. Most apps show it. If there are meaningful quantities close to the current price, a market order may be practical. If the quantities are small and the prices jump, a limit order may give you more control over the price.
The moments when the book thins out
The first few minutes. Prices are settling and quantities are erratic. The pre-open session exists to establish an opening price, and until it has, the book is not representative.
The closing minutes. For stocks with derivative contracts, continuous trading now ends at 3:15 and the closing price is set by an auction running to 3:35. Market orders are accepted only from 3:20 to 3:25, and the ordinary book is not what you are trading into. Stocks without derivative contracts continue to trade until 3:30.
Around the news. Results, an announcement, a rumour. Spreads widen because nobody wants to be the person who quoted a price a second before everyone learned something.
In anything thinly traded, at any time. Small companies, illiquid options, recently listed shares.
The other thing on the order screen
Alongside price, there is also order validity, which determines how long your order remains active.
Day is the default. It stays live until the market closes, then lapses if unfilled.
Immediate or cancel fills whatever it can right now and cancels the rest. Useful when you want a price and do not want an order sitting in the book advertising your intention.
There is also the after market order, which you place outside trading hours. Your broker holds it and releases it when the market next opens. It is a queuing convenience, not a way to trade while the market is shut, and it lands into exactly the unsettled opening book described above.
What a limit order actually costs you
Being fair about the other side of this.
A limit order can leave you unfilled while the stock runs away from you. If you decide a share is worth owning at ₹100 and set your limit there, and it never trades below ₹101 again, your discipline has cost you the entire move.
Limit orders also do not protect you from everything. If a stock gaps well past your price overnight, your order is not a shield, it is just an instruction that will never be reached.
The honest position is that limit orders protect you from bad execution, not from being wrong.
Choosing between the two
For a large, actively traded company, during ordinary trading conditions and for an order size the book can absorb, a market order may be practical.
In other situations, consider a limit order set close to the current price. You may occasionally miss a fill, but you have more control over the maximum price you will pay.
Common questions
What is the difference between a market order and a limit order?
A market order executes immediately at whatever price is available. A limit order executes only at your specified price or better, and may not execute at all.
Which order type should a beginner use?
A limit order can be useful when price control matters. Market orders may be practical in large, heavily traded companies during ordinary trading conditions.
Why did my order fill at a different price than I saw?
Because the price on screen is the last trade, not an offer. A market order takes whatever is actually available, which in a thin book can be some distance away.
What is the bid-ask spread?
The gap between the highest price a buyer will pay and the lowest a seller will accept. Buying and selling immediately costs you that gap.
What is tick size?
The smallest increment a price can move. On the NSE it runs on a graded scale from one paisa for shares below ₹250 up to ₹5 for shares above ₹20,000, reviewed monthly against the previous month’s closing price.
What does IOC mean?
Immediate or cancel. The order fills whatever it can straight away and the remainder is cancelled rather than left in the book.
What is an after market order?
An order placed outside market hours that your broker submits when trading next opens. It does not trade while the market is closed.
Does a limit order guarantee I get the price?
It guarantees you will not pay worse than your limit. It does not guarantee you will trade at all.
The short version
Market orders buy certainty of execution with uncertainty of price. Limit orders do the reverse.
Which one is more suitable depends on how much is available near the price you are looking at. Check the market depth before you place the order.
Risk disclosure
Hem Finlease Private Limited, SEBI Registration No. INZ000167734. Hem Securities Limited, SEBI Reg. No. IN-DP-568-2021, CDSL: 17700/17701.
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI and membership of recognised stock exchanges do not guarantee the performance of the intermediary or provide any assurance of returns to investors.
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