Why was the limit order executed at the market price instead of the specified limit price?
To understand this let’s understand first what is Limit order.
A limit order is an order to buy or sell a security at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.
Example:
For Buy:
If Reliance is being traded at 2100.30. If trader wants to buy relinace at the lower price then he/she can set the limit order stateting that the order should be executed at 2100.20. This helps trader to take the trade at their levels. So when reliance will come to 2100.20 then only the order will be executed.
For sell:
If Reliance is being traded at 2100.30. If trader wants to sell Relinace at the higher price then he/she can set the limit order stateting that the order should be executed at 2100.40. This helps trader to take the trade at their levels. So when reliance will come to 2100.40 then only the order will be executed.
Why sometimes trades set at Limit order gets executed as market oders?
To this questions we have 2 answers:
1. New traders and sometimes even seasonal traders make this mistake.
Example: For buy trade:
If Reliance is being traded at 2100.30. If trader wants to buy relinace at the lower price then he/she should set the limit order below the current trading price if he/she by mistake set the price above the current trading price of Reliance the order is automatically considered as a market order by default and hence the order gets executed at the current price of the instrument (Reliance).
To understand better why it happens (For Buyer)
When you set limit order price above the current trading price of an asset it means that you are ready to buy the asset at the higher price compared to it’s current trading price. If current price is 100 and limit is set 110 it means even if the price comes till 108 or 109.99 you are ready to buy the asset but not above 100. This is usally used by options traders when primum market is very volatile. In such cases instead of market order limit order is used so that if price jumps the trade doesn’t gets executed.
Example: For Sell trade:
If Reliance is being traded at 2100.30. If trader wants to sell relinace at the higher price then he/she should set the limit order above the current trading price if he/she by mistake set the price lower the current trading price of Reliance the order is automatically considered as a market order by default and hence the order gets executed at the current price of the instrument (Reliance).
To understand better why it happens (For Seller)
When you set limit order price below the current trading price of an asset it means that you are ready to sell the asset even at the lower price compared to it’s current trading price. If current price is 100 and limit is set 90 it means even if the price comes down till 91 or 92 you are ready to sell the asset but not below 90. This is usally used by options traders when primum market is very volatile. In such cases instead of market order limit order is used so that if price jumps the trade doesn’t gets executed.
2. Market Volatality:
If market is to volatile then may be the price has reach that level and again come back to same level therefore such fast moves can not be seen my naked eyes and hence the order gets triggered.