Two Types of Orders on the Stock Exchange: Limit Order & Market Order

In securities trading in the secondary market, there are at least two types of orders, namely Limit Order and Market Order. Both have their own characteristics and may be used at different times or for different purposes.

The fundamental difference between a Limit Order and a Market Order is how investors determine the price of the securities they will buy or sell.

Limit Order

Limit Order is an order to sell or buy securities by specifying the desired price of the securities. Usually, the price entered is below the best bid or above the best offer so that you have to queue for a match. This is intended as an effort to obtain maximum profit.

If the market price does not reach the predetermined Limit Order, the order will automatically expire at the end of the trading session or day.

Illustration of Trading with Limit Order

An investor wants to buy a stock with the following Order Book.

Order Type	Lot	Bid	Offer	Lot	Order Type
Limit	250	800	805	300	Limit
Limit	250	795	810	250	Limit
Limit	200	790	815	225	Limit
Limit	150	785	820	100	Limit

Instead of buying at the best offer price, he wanted to buy at a price below the best bid because his analysis showed that the market price would fall. He then entered a Buy Limit Order at 785 for 50 lots.

Order Type	Lot	Bid	Offer	Lot	Order Type
Limit	250	800	805	300	Limit
Limit	250	795	810	250	Limit
Limit	200	790	815	225	Limit
Limit	200	785	820	100	Limit

The next day, after a match at 785, the investor wants to sell 50 lots of his shares at 800, while the best bid is at 780. This means he has to wait in line with the risk of his Sell Limit Order not being matched until the trade expires.

Order Type	Lot	Bid	Offer	Lot	Order Type
Limit	250	780	785	300	Limit
Limit	250	775	790	250	Limit
Limit	200	770	795	225	Limit
Limit	150	765	800	150	Limit

Market Order: Make Transactions Instantly Match at the Best Price

Market Order is an order to sell or buy securities by not entering a price, but automatically following the best market price (best bid or best offer).

Therefore, Market Orders can only be executed if the Order Book contains the best bid for sell orders or the best offer for buy orders.

Pros of Market Order

This type of order has a number of benefits compared to Limit Orders:

• Facilitates the execution of orders (usually in large lots) at market prices and in real time.

• Increases the potential for transactions to occur.

• Has a higher order priority than Limit Orders in the JATS system.

• Potential to match with the best price.

Kinds of Market Orders

As discussed in the previous content, Market Orders are subdivided into several kinds:

• FAK (Fill and Kill)

• FOK (Fill or Kill)

• MTL (Market to Limit)

So, what is the difference between each kind of Market Order?

	FAK	FOK	MTL
Matching Mechanism	Traded in whole or in part at various price levels available on the Order Book	Traded in whole or not at all at various price levels available on the Order Book	Traded in whole or in part at various price levels available on the Order Book
Order Duration Type	Immediate	Immediate	1. Session 2. Day
Trading Session	1. Pre-opening 2. Session I 3. Session II 4. Pre-closing	1. Session I 2. Session II	1. Session I 2. Session II
Sweep Limit (Matchable Price)	Maximum 10 price fractions after best bid or best offer	Maximum 10 price fractions after best bid or best offer	Maximum 10 price fractions before converting to a Limit Order after best bid or best offer

Illustration of Trading with Market Order

When trading using Market Orders, there are several trading conditions according to the available volume in the Order Book. To understand the illustration clearly, refer to the following explanation.

First Condition: Market Order Volume Equal or Less than Order Book

Order Type	Lot	Bid	Offer	Lot	Order Type
Market	500	-	805	300	Limit
Limit	250	800	810	250	Limit
Limit	250	795	815	225	Limit
Limit	200	790	820	100	Limit
Limit	150	785	825	150	Limit

A Buy Market Order of 500 lots will be matched entirely with 300 lots at the offer price of 805 and 200 lots at the price of 810.

Order Type	Lot	Bid	Offer	Lot	Order Type
Limit	250	800	810	50	Limit
Limit	250	795	815	225	Limit
Limit	200	790	820	100	Limit
Limit	150	785	825	150	Limit

The illustrations in this condition apply to all kinds of Market Orders (FAK, FOK, and MTL).

Second Condition: Market Order Volume Equals or Less than Order Book, but Available Volume Exceeds Sweep Limit

Order Type	Lot	Bid	Offer	Lot	Order Type
Market	1000	-	805	300	Limit
Limit	250	800	810	250	Limit
Limit	250	795	815	225	Limit
Limit	200	790	880	100	Limit
Limit	150	785	885	150	Limit

In the FAK Market Order, a Buy of 1000 lots will only partially match with 300 lots at the 805 offer price, 250 lots at the 810 price, and 225 lots at the 815 price. The remaining 225 lots cannot be matched because the subsequent volume has exceeded the sweep limit (the 815 to 880 price has exceeded 10 fractions).

Order Type	Lot	Bid	Offer	Lot	Order Type
Market (FAK)	225 (expired)	-	880	100	Limit
Limit	250	800	885	150	Limit
Limit	250	795
Limit	200	790
Limit	150	785

Whereas on FOK Market Order, a Buy of 1000 lots will expire entirely because there are only 775 lots at various price levels that do not exceed the sweep limit. Therefore, the Market Order cannot be traded at all.

Order Type	Lot	Bid	Offer	Lot	Order Type
Market (FOK)	1000 (expired)	-	805	300	Limit
Limit	250	800	810	250	Limit
Limit	250	795	815	225	Limit
Limit	200	790	880	100	Limit
Limit	150	785	885	150	Limit

Meanwhile, on Market Order MTL, a Buy of 1000 lots will only be partially matched with 300 lots at the offer price of 805, 250 lots at the price of 810, and 225 lots at the price of 815. Since the price of 815 to 880 has exceeded the sweep limit, the remaining 225 lots will be converted into a Limit Order with the last match price of 815.

Order Type	Lot	Bid	Offer	Lot	Order Type
Limit (MTL)	225	815	880	100	Limit
Limit	250	800	885	150	Limit
Limit	250	795
Limit	200	790
Limit	150	785

Third Condition: Market Order Volume is More than Order Book

Order Type	Lot	Bid	Offer	Lot	Order Type
Market	1500	-	805	300	Limit
Limit	250	800	810	250	Limit
Limit	250	795	815	225	Limit
Limit	200	790	820	100	Limit
Limit	150	785	825	150	Limit

In the Market Order FAK, a Buy of 1500 lots will only be partially matched with the total lots and offer price shown. The remaining 475 lots cannot be matched due to insufficient volume in the Order Book.

Order Type	Lot	Bid	Offer	Lot	Order Type
Market (FAK)	475 (expired)	-
Limit	250	800
Limit	250	795
Limit	200	790
Limit	150	785

Whereas on FOK Market Order, a Buy of 1500 lots will expire entirely because there are only 1025 lots at various price levels in the Order Book. Therefore, the Market Order cannot be traded at all.

Order Type	Lot	Bid	Offer	Lot	Order Type
Market (FOK)	1500 (expired)	-	805	300	Limit
Limit	250	800	810	250	Limit
Limit	250	795	815	225	Limit
Limit	200	790	820	100	Limit
Limit	150	785	825	150	Limit

Meanwhile, on Market Order MTL, a Buy of 1500 lots will only be partially matched with the total lots and offer price listed. Because the volume in the Order Book is insufficient, the remaining 475 lots will be converted into a Limit Order with the last match price of 825.

Order Type	Lot	Bid	Offer	Lot	Order Type
Limit (MTL)	475	825
Limit	250	800
Limit	250	795
Limit	200	790
Limit	150	785

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Disclaimer: The content is made for educational purposes, not a recommendation to buy or sell a particular stock. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (OJK).