NISM-Series-VIII: Equity Derivatives · Trading Mechanism

Order Types and Order Conditions in F&O Trading

Updated 11 October 2026 · Fact-checked

An order type tells the exchange how to price your trade: limit (your price or better), market (best available price now) or stop-loss (activates at a trigger price). An order condition sets how long it lives: Day, IOC or GTC. Matching follows price-time priority: best price first, then earliest time.

Understand Order Types and Order Conditions

Every order you place has two parts. The first is the order type, which decides the price at which you are willing to trade. The second is the order condition (also called validity), which decides how long the order stays alive.

A limit order fixes a price. A buy limit order trades at the limit price or lower. A sell limit order trades at the limit price or higher. You get price control, but the order may not execute. A market order has no price. It trades at once at the best prices available in the order book. You get execution, but not price certainty, and a large order can fill at several different prices.

A stop-loss (SL) order stays dormant until the market reaches a trigger price. Once triggered, it becomes a live order. In an SL limit order, it becomes a limit order at your stated limit price. In an SL market order, it becomes a market order. A sell stop-loss protects a long position: the trigger sits below the current market price. A buy stop-loss protects a short position: the trigger sits above the current market price.

Time conditions control validity. A Day order lasts until the end of the trading day and then lapses if unexecuted. An IOC (Immediate or Cancel) order must be executed immediately, fully or partly, and any unfilled part is cancelled. A GTC (Good Till Cancelled) order stays alive until you cancel it or it executes. In practice, exchanges may limit how long such orders stay valid, and a derivatives order cannot outlive its contract expiry. Check the NISM workbook wording for the exact validity rules.

The exchange system matches orders by price-time priority. Among buy orders, the highest price gets priority. Among sell orders, the lowest price gets priority. At the same price, the order that entered the system first is matched first. Changing an order's price, or increasing its quantity, generally sends it to the back of the queue at that price.

Key formulas to remember

Limit order rule: Buy: execute at limit price or lower | Sell: execute at limit price or higher; Gives price control but no guarantee of execution.
Market order rule: Executes immediately at best available price; Gives execution certainty but no price certainty.
Stop-loss trigger position: Sell SL: trigger below market | Buy SL: trigger above market; The order is dormant until the trigger price is reached.
IOC rule: Execute immediately (fully or partly); cancel the balance; Partial fills are allowed; the unfilled part is cancelled.
Price-time priority: Better price first; same price → earlier time first; Best buy = highest bid. Best sell = lowest offer.

How to solve Order Types and Order Conditions questions

Use this method for any question on order types, conditions or matching.

1Identify what the question tests: price instruction (type), validity (condition) or matching (priority).
2For type questions, ask whether price control or certain execution is wanted. Price control means limit; execution means market.
3For stop-loss questions, check whether the order is dormant until a trigger, and whether the trigger is below (sell) or above (buy) the market.
4For condition questions, match the keyword: end of day means Day, immediate means IOC, until cancelled means GTC.
5For matching questions, rank buy orders by highest price and sell orders by lowest price. Break ties by earlier time.
6Check whether an order was modified. A price change generally loses time priority.
7Eliminate options that swap definitions, such as calling IOC a day-long order.

Quickest way: Keyword matching

When to use it: Use this for definition-style MCQs where you have under a minute.

Spot the keyword: price fixed, immediate, trigger, till cancelled, earliest.
Map it: price fixed = limit; immediate with cancel = IOC; trigger = stop-loss; earliest at same price = time priority.
Pick the option that matches the map and reject any option that reverses buy and sell directions.

Common mistakes in Order Types and Order Conditions

Thinking a limit order always executes
Students focus on the price being set and forget the market may never reach it.
Fix: Remember: limit gives price control, not execution certainty.
Saying an IOC order must be filled in full
The word 'immediate' sounds like all-or-nothing.
Fix: IOC allows partial execution. Only the unexecuted balance is cancelled.
Confusing stop-loss trigger price with limit price
Both are prices on the same order.
Fix: The trigger activates the order. The limit price then controls the execution price of the activated order.
Placing the sell stop-loss trigger above the market
Students mix up direction and think of profit-taking.
Fix: A sell stop-loss for a long position triggers below the current price to cap losses.
Assuming the larger order gets priority at the same price
Students assume size matters.
Fix: At the same price, only time matters. Earlier entry wins.
Thinking a modified order keeps its place in the queue
It feels like the same order.
Fix: A price change generally gives the order a fresh time stamp and puts it behind existing orders at that price.

Worked examples

Example 1

Buy orders in the book for a stock future: A bids ₹2,500 at 10:01, B bids ₹2,502 at 10:03, C bids ₹2,502 at 10:02. A sell market order arrives. In what order are the buy orders matched?

Show the solution

Rank by price: the highest bid has priority. B and C at ₹2,502 beat A at ₹2,500.
B and C tie on price, so time decides.
C entered at 10:02, earlier than B at 10:03, so C comes first.
Then B, and A last.

Answer: C, then B, then A.

Example 2

You hold a long futures position bought at ₹1,000, now trading at ₹1,040. You want an automatic exit if the price falls to ₹1,020. Which order do you place?

Show the solution

You want a protective exit, so the order should be dormant until a price is reached: a stop-loss order.
You are long, so you must sell. A sell stop-loss has its trigger below the market.
Set the trigger price at ₹1,020, which is below ₹1,040.
Choose SL-market if exit certainty matters, or SL-limit if you want a price floor.

Answer: A sell stop-loss order with trigger price ₹1,020.

Exam tips

Expect definition MCQs that swap IOC and Day. Read the validity wording carefully.
In price-time priority questions, rank by price first and use time only for ties.
Check the direction in stop-loss questions: sell triggers below market, buy triggers above.
With negative marking on a 25% scale, skip a question if two options still look equally right.

Practice questions from Trading Mechanism

Order Types and Order Conditions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Order Types and Order Conditions: frequently asked questions

What is the difference between a Day order and an IOC order?

A Day order stays valid until the end of the trading day. An IOC order must be executed immediately, and any unfilled part is cancelled. IOC can fill partly.

What is price-time priority in order matching?

The exchange matches the best-priced orders first: highest buy and lowest sell. When orders have the same price, the one entered earlier is matched first.

What is the difference between a limit order and a market order?

A limit order fixes the price but may not execute. A market order executes immediately at the best available price, but the price is not fixed.

How does a stop-loss order work?

It stays dormant until the market reaches the trigger price. Then it becomes a live order, either a limit or a market order depending on its type.