5.4 Order matching priorities
HOW THE ORDERS MATCH?
For immediate execution of orders, the best sell order is the order with the lowest price and a best buy order is the order with the highest price. The
unmatched orders are queued in the system by the following priority:
- By Price
A buy order with a higher price gets a higher priority and similarly a sell order with a lower price gets a higher priority. For example, consider the following buy orders:
1) 100 shares @ Rs 105.00 at 9:30 am.
2) 200 shares @ Rs 105.05 at 9:43 am.
Which order will get executed first? The second order price is greater than the first order price and therefore is the best buy order.
- By Time
If there is more than one order at the same price, the order entered earlier gets a higher priority. For example, consider the following sell orders:
1) 100 shares @ Rs 100.75 at 9.30 am.
2) 150 shares @ Rs 100.75 at 9.35 am.
Which order will get executed first? Both orders have the same price but they were entered in the system at different times. The first order was entered before the second order and therefore is the best sell order.
There are three important documents that record your transactions through the concerned exchange – ‘order confirmation slip’, ‘trade confirmation slip’ and a ‘contract note’. After you have placed the order specifying your conditions, your broker should give you an order confirmation slip and after the trade has taken place you should get a trade confirmation slip. Normally, brokers give a contract note within 24 hours of the execution of the trade, once the deal is through. The contract note is an important document as it contains details of the trade, the price and brokerage charged within. You should preserve this note for tax purposes. It would also help you in resolving any disputes with the broker regarding the exact time and price at which the deal was struck.