Glossary
Limit Order
An order to buy or sell a stock only at a specific price or better.
Simple explanation
A buy limit order executes only at your specified price or lower.
A sell limit order executes only at your specified price or higher.
Unlike market orders, limit orders give you price control but may not execute if the price never reaches your level.
On NSE and BSE, limit orders are the most commonly used order type by experienced traders. When you place a limit order on Zerodha or Groww, it sits in the exchange's order book until it gets matched with a counter-party or until the market closes at 3:30 PM. If it does not execute, it gets cancelled automatically at day end unless you use a GTT order.
Limit orders are essential when trading stocks that have wide bid-ask spreads. In large-cap stocks like Reliance or Infosys, the spread is usually just 5-10 paise, so it barely matters. But in small-cap stocks with low liquidity, the spread can be ₹1-2 or even more. A market order in such stocks could fill at a significantly worse price than you expected.
A smart strategy many Indian investors use is placing limit orders slightly below the current market price when buying, especially during volatile sessions. For example, if HDFC Bank is trading at ₹1,620, you might place a buy limit at ₹1,610. During intraday fluctuations, there is a good chance it dips to your price, saving you ₹10 per share.
SEBI allows limit orders with a price band restriction. For most stocks, you cannot place a limit order more than 20% above or below the previous closing price. This circuit breaker mechanism prevents manipulation. For stocks in the F&O segment, there are no circuit limits, but the exchange has dynamic price bands that get adjusted through the day.
Real-world example
You want to buy 50 shares of Infosys on NSE, currently trading at ₹1,550. Instead of placing a market order and paying ₹1,550 immediately, you place a buy limit order at ₹1,530. Two hours later, Infosys dips to ₹1,528 during an intraday sell-off, and your order executes at ₹1,530. You saved ₹20 per share, or ₹1,000 on your 50-share order. If Infosys had never dipped below ₹1,550 that day, your order would have expired unfilled at 3:30 PM, and you would need to place it again the next day or use a GTT order on Zerodha to keep it active for up to one year.
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