This is an optional add-on protective feature to a Market Order. It allows a trader to set a price range within which the orders can get executed since trader is never sure of the buy / sell price in a market order.
Example
- Scenario 1: Suppose you place a buy market order for 1,000 stock at the current market price of Rs. 20. Let’s understand how the orders will be filled up:
SL NO | Quantity | Price | Total Buy Price |
1 | 150 | 20 | 3000 |
2 | 100 | 20.20 | 2020 |
3 | 50 | 20.35 | 1017.5 |
4 | 75 | 20.60 | 1545 |
5 | 200 | 20.90 | 4180 |
6 | 100 | 21.20 | 2120 |
7 | 125 | 21.80 | 2725 |
8 | 200 | 22.20 | 4440 |
Total Quantity = 1000 | Total Buy Amount = 21047.5 |
So, Average Buy price = Total Buy price / Quantity
= 21047.5 / 1000
= 21.0475
- Scenario 2: Suppose you place a buy market order for 1,000 stock at the current market price of Rs. 20 and place a Market-With-Protection @ 5%. So, here because of Market-With-Protection @ 5% of Rs. 20. The orders will stop getting executed after the price breaches Rs. 21 which is +5% of Rs. 20 [Rs. 20 + 1 (Rs. 20 * 0.05)]
Let’s understand how the orders will be filled up:
SL NO | Quantity | Price | Total Buy Price |
1 | 150 | 20 | 3000 |
2 | 100 | 20.20 | 2020 |
3 | 50 | 20.35 | 1017.5 |
4 | 75 | 20.60 | 1545 |
5 | 200 | 20.90 | 4180 |
Total Quantity = 575 | Total Buy Amount = 11762.5 |
So here only 575 orders will be executed and the remaining 425 (1000 – 575) orders will be pending until the price comes at or below Rs. 21.