Market order
An order to buy or sell a contract at the best price currently available in the market — no price is specified, so it trades immediately against the opposite side of the order book.
In plain language
A market order says "fill me now, at whatever the best available price is." The workbook defines it as an order to buy or sell a contract at the best bid/offer price currently available in the market. The price is not specified at the time of placing the order.
A buy market order executes at the best price at which a seller is ready to sell — the lowest ask. A sell market order executes at the best price at which a buyer is ready to buy — the highest bid.
What you get is speed and certainty of execution. What you give up is control over price: a market order accepts the spread, and if it is large it walks down the order book and accepts the worse prices behind the best one too.
How it works
Market orders sit in the workbook's list of price conditions, alongside limit orders; time conditions such as day orders and IOC orders are a separate category, and combinations are allowed.
Matching. Indian F&O platforms are order driven and match on price-time priority. A market order is matched against the best opposite orders, and an order may match partially with another order, resulting in multiple trades.
The cost of immediacy. In Chapter 6's discussion of trading costs, the workbook says buyers "who place orders to buy at the market price instead of placing limit orders end up paying higher prices", and sellers at market receive lower prices. Those costs are the bid-ask spread and impact cost — not paid to anyone, but real.
Stop-loss orders become market orders. A stop-loss order is activated when its trigger price is reached and enters the market as a market order or as a limit order, as defined when it was placed.
The workbook's Chapter 2 order book shows the simplest case: a market buy order for 100 shares is matched at the best sell of Rs 4.50; a market sell for 100 shares at the best buy of Rs 4.00. Buy and sell immediately and you are poorer by the spread — Rs 50.
A worked example
Using the workbook's Chapter 2 order book:
| Buy qty | Bid (Rs) | Ask (Rs) | Sell qty |
|---|---|---|---|
| 1,000 | 4.00 | 4.50 | 2,000 |
| 1,000 | 3.90 | 4.55 | 1,000 |
| 2,000 | 3.80 | 4.70 | 500 |
| 1,000 | 3.70 | 4.75 | 100 |
100 shares, market buy then market sell:
Buy 100 × 4.50 = Rs 450
Sell 100 × 4.00 = Rs 400
Round-trip cost = Rs 50 (the bid-ask spread of 0.50 × 100)
3,000 shares, market buy then market sell. The buy order hits 2,000 at 4.50 and 1,000 at 4.55; the sell order hits 1,000 each at 4.00, 3.90 and 3.80:
Buy cost = 2,000 × 4.50 + 1,000 × 4.55 = 9,000 + 4,550 = Rs 13,550 (avg 4.5167)
Sell proceeds = 1,000 × 4.00 + 1,000 × 3.90 + 1,000 × 3.80 = 4,000 + 3,900 + 3,800 = Rs 11,700 (avg 3.90)
Round-trip cost = 13,550 − 11,700 = Rs 1,850
Thirty times the quantity, thirty-seven times the cost (1,850 ÷ 50). Measured against the ideal price of (4.00 + 4.50) ÷ 2 = Rs 4.25, the buy side degraded by (4.5167 − 4.25) ÷ 4.25 = 6.27% and the sell side by (4.25 − 3.90) ÷ 4.25 = 8.24% — that is the impact cost of demanding immediacy in a thin book.
Why NISM asks about it
Chapter 6, section 6.1, defines the market order under price conditions next to the limit, day, IOC and stop-loss orders. Chapter 2, section 2.4, uses market buy and sell orders to explain the bid-ask spread and impact cost, and Chapter 6, section 6.5, explains why market orders pay those costs. Expect definition questions ("price not specified", "best available price") and questions contrasting market with limit orders.
Common exam traps
- A market order does not specify a price. A limit order does.
- A buy market order executes at the best ask (lowest sell), a sell market order at the best bid (highest buy) — not at the last traded price.
- Large market orders walk the book. Only the first slice gets the best price; the rest pays progressively worse prices.
- The spread and impact cost are not charges — nobody bills you — but they are real costs of market orders.
- A stop-loss order becomes a market or limit order once triggered, depending on how it was placed.
- Market and limit are price conditions; day and IOC are time conditions.
Where this is taught
- Series XVI · Chapter 6: Trading Mechanismintroduced here
- Series VIII · Chapter 6: Trading Mechanismintroduced here
Related terms
- Impact costThe percentage by which a market order's actual execution price degrades against the ideal price — the mid-point of the best bid and the best offer — and so the real cost of trading in size.
- Stop loss orderAn order that stays out of the market until the price reaches a trigger price, then enters as a limit or market order - used to cap the loss on an open position.
- Order bookThe live electronic list of unmatched buy and sell orders for a contract, arranged by price level, showing quantity and number of orders at each price — generally up to five price levels a side.
- Price-time priorityThe order-matching rule on Indian F&O platforms: the best price is matched first, and among orders at the same price, the one entered earliest gets priority.
- Bid-ask spreadThe gap between the best buy (bid) price and the best sell (ask) price in the order book — the cost a trader bears for buying and immediately selling a small quantity.
- Ideal priceThe average of the best bid and the best offer price in the order book — the benchmark against which impact cost is measured, and the price you would get in an infinitely liquid market.
- Limit orderAn order to buy or sell a contract at a specified price or better — lower for a buy, higher for a sell — which waits in the order book if it cannot be matched at once.
- Screen Based Trading SystemThe nation-wide automated trading platform on which commodity derivatives are traded, matching orders anonymously on strict price-time priority rather than by negotiation.
- Good-Till-TriggerA broker-side resting instruction that sits outside the exchange until a chosen trigger price is touched, at which point it is converted into an ordinary order and pushed to the exchange.
- Trailing stop lossA broker-level stop loss order whose trigger moves up with the price by a set rupee amount or percentage but never moves down, so it limits loss and locks in part of any gain.
- Good-Till-Date and Good-Till-CancelledTwo time-related order types: a GTD order lives until a date the trader names, and a GTC order lives until it executes, the trader cancels it, or the contract expires, whichever is earlier.
- Disclosed QuantityAn order condition that shows the market only part of the total quantity — once that visible slice trades, the next slice is automatically released, repeating until the whole order is filled.
- Day orderAn order valid only for the single trading day on which it is entered — if not executed by the end of the day, the trading system automatically cancels it.
- Price freezeWhat happens when an order is placed at a price beyond the exchange's operating range for that contract — the order reaches the exchange as a frozen order rather than executing.
- Trigger priceThe price at which a stop-loss order is activated and enters the market as a market or limit order — set between the last traded price and the order's own limit price.
- Passive orderAn order lying unmatched in the order book — a buy priced below, or a sell priced above, the market. Passive orders add depth and liquidity; active orders at the market price consume it.
- Active orderAn order to buy or sell at the prevailing market price, which matches immediately against an order already resting in the order book — draining liquidity rather than adding to it.