How Orders Actually Work: Market Microstructure India

Every backtest I have ever seen makes the same quiet assumption: you get the closing price, in full size, for free. The live market never agrees. Your order lands in a queue, waits behind other orders at the same price, crosses a spread, and on a busy day it may not fill at all. This module is the plumbing of NSE, from the moment you press Buy to the moment the shares sit in your demat. Learn it once and every later module in this path makes more sense.

The order book: price-time priority

NSE runs a continuous electronic order book. Buy orders stack on one side by price, sell orders on the other. Matching follows two rules, in this order. Price first: the highest bid and the lowest ask always get served first. Time second: among orders at the same price, the one that arrived earlier fills earlier. That is the whole engine. It does not care who you are, how big you are or what your strategy is.

Take Reliance, which closed at ₹1,170.30 on 9 October 2026. Under the current tick grid a ₹1,170 stock moves in steps of ₹0.10, so a quote on screen during the day might read:

• Best bid ₹1,170.20: the most anyone is willing to pay right now.
• Best ask ₹1,170.30: the least anyone is willing to sell for.
• Spread ₹0.10: the price of immediacy, about 0.009% of the share price.

A market buy fills at ₹1,170.30 straight away, and if your size is larger than what sits at that level, the rest walks up to ₹1,170.40, ₹1,170.50 and so on. A limit buy at ₹1,170.20 joins the queue of buyers at that price. It fills only when a seller comes down to meet it, and only after every buyer who was there before you.

Market depth is how much quantity sits at each price. Your broker screen shows the best five levels on each side. Deeper views of the book come through paid exchange data feeds. Five levels are enough for most investors; the point is to look at them before you send a large order, not after.

Tick sizes and lot sizes: the grid your strategy operates on

Prices on NSE cannot take any value you like. They move on a grid called the tick size, and since 15 April 2025 that grid depends on the share price. NSE resets it every month from the last closing price of the previous month.

Source: NSE tick size framework for the cash market, revised effective 15 April 2025. Stock futures follow the cash tick; options keep ₹0.05.

Why care? Because a limit price that is not on the grid gets rejected, and a script that rounds every price to ₹0.05 will throw errors on a ₹1,170 stock. Scripts like that tend to fail on the first trading day of a month, when the grid moves.

Lot size is the minimum quantity. In the cash market it is one share. In F&O it is set so a contract is worth at least ₹15 lakh at review, the floor SEBI set in October 2024. NSE revised the index lots in October 2025: Nifty 50 went from 75 to 65 and Bank Nifty from 35 to 30, starting with the January 2026 expiries. With the Nifty at 22,520 on 9 October 2026, one lot is about ₹14.6 lakh of exposure. If you size a hedge from an old lot size, you hedge the wrong amount.

The trading day: pre-open, continuous and closing sessions

The NSE equity day is not one long session. It is an opening auction, a continuous session and, for a large set of stocks since August 2026, a closing auction. Two changes this year matter for anyone who trades near the open or the close.

1. 9:00 amPre-open order entry starts

   Market and limit orders until 9:05.

2. 9:05 amLimit orders only

   Entry closes at a random moment between 9:08 and 9:10.

3. 9:10 amOpening auction match

   One equilibrium price for every matched order, then a buffer.

4. 9:15 amContinuous trading

   Price-time priority until 3:15 pm for F&O stocks, 3:30 pm for the rest.

5. 3:15 pmClosing auction begins for F&O stocks

   Reference price from the 3:00 to 3:15 average, band of plus or minus 3%.

6. 3:20 pmAuction order entry

   Market orders until 3:25, limit orders until a random close between 3:28 and 3:30.

7. 3:50 pmPost close session

   Trades only at the official closing price, until 4:00 pm.

NSE equity session timings after the Closing Auction Session (3 Aug 2026) and the pre-open alignment (7 Sep 2026).

Pre-open, 9:00 to 9:15

From 7 September 2026, the pre-open runs like this. Market and limit orders can go in from 9:00 to 9:05. Only limit orders are accepted from 9:05 until order entry closes at a random moment between 9:08 and 9:10. Matching at a single equilibrium price follows, then a buffer before continuous trading starts at 9:15. The random close is there so nobody can time an order at the last second. Market orders get priority in the opening match.

Continuous session, 9:15 to 3:30

This is price-time priority in action. For stocks without F&O contracts it runs to 3:30 pm, and the closing price is still the volume weighted average of the last 30 minutes. For stocks with F&O contracts it now ends at 3:15 pm.

Closing Auction Session, from 3 August 2026

For F&O stocks, a SEBI circular of 16 January 2026 moved the close to an auction. The reference price is the volume weighted average from 3:00 to 3:15 pm, and a band of plus or minus 3% sits around it. Orders go in from 3:20, market orders stop at 3:25, entry closes at a random moment between 3:28 and 3:30, and the equilibrium price becomes the official close. Stop loss orders are not allowed in the auction. A post close session follows from 3:50 to 4:00 pm, where you can trade only at that closing price.

Circuit limits: the safety nets

There are two kinds, and they are often confused.

Price bands on single stocks. Most stocks carry a daily band of 2%, 5%, 10% or 20% from the previous close. When a stock hits its band, trading does not stop; it simply cannot trade beyond that price. If it is locked at the upper band with only buyers, your buy order sits there unfilled. Stocks in the F&O segment have no fixed band; the exchange widens a dynamic band in steps during the day.

Market wide circuit breakers. These halt the whole equity and derivatives market when the Nifty 50 or the Sensex moves 10%, 15% or 20% from the previous close. How long depends on the time of day:

• 10%: a 45 minute halt before 1:00 pm, 15 minutes between 1:00 and 2:30 pm, no halt after 2:30 pm.
• 15%: 1 hour 45 minutes before 1:00 pm, 45 minutes between 1:00 and 2:00 pm, the rest of the day after 2:00 pm.
• 20%: trading stops for the rest of the day, whenever it happens.

Source: SEBI index based market wide circuit breaker framework. Each halt ends with a 15 minute pre-open call auction.

The 10% breaker fired twice in March 2020, on the 13th and the 23rd, each time a 45 minute halt followed by a reopening auction. For a rebalance engine the lesson is simple. Your code must be able to say "the market is halted, hold the orders, try again after the reopen" without a human in the loop.

T+1 settlement: what happens after you trade

India finished the move to T+1 for every listed share on 27 January 2023. A trade on Monday settles on Tuesday: the clearing corporation nets everything, the depository moves the shares, the clearing banks move the money. The shares you bought show up in your demat on the settlement day.

Same day settlement exists too. SEBI started an optional T+0 cycle in March 2024 with 25 stocks and widened it to the top 500 by market cap in monthly batches of 100 from 31 January 2025. It runs alongside T+1, volumes are thin, and most investors never use it.

Two practical effects of T+1 on a strategy:

• Sale money is usable before it settles, within limits. Brokers usually let you use most of today's sale proceeds to buy today, so a rebalance can sell and buy in one session. Withdrawing that cash to your bank waits for settlement.
• Shares bought today cannot be delivered against a sale tomorrow until they reach your demat. A strategy that buys on Monday and sells on Tuesday before settlement takes on short delivery risk. Rebalance cadences of a week or more never hit this.

Impact cost: the hidden price of size

Impact cost is how much worse than the mid price you fill when your order eats into the book. NSE uses it as an index eligibility test: to sit in the Nifty 50, a stock must show an impact cost of 0.50% or less on a ₹10 crore basket in 90% of observations over six months. For you, the more useful idea is participation: your order as a share of what the stock trades in a day.

A rule of thumb that has served me well: keep each order under 2% to 3% of the stock's typical daily value, and split anything above 5% across sessions. Module 10.6 turns this into a capacity table.

Common mistakes

• Hard coding the tick. The grid changes with price and resets monthly. Read it from the exchange master file each day.
• Using a stale lot size. Nifty is 65 from the January 2026 expiries, not 75. A hedge sized on the old lot is off by 15%.
• Treating a price band hit as a halt. The stock still trades; it just cannot trade beyond the band. Your limit order may never fill.
• Sending stop loss orders into the closing auction. They are not accepted in the Closing Auction Session.
• Reading average volume as typical volume. One block day can triple a 60 day average. Look at the median, or the last ten quiet sessions.

How this shows up in RupeeCase

Every RupeeCase index is an algo that rebalances on a fixed cadence: one week for the sector baskets, two weeks for most of the lineup, three or four weeks for the concentrated and largecap ones. On a rebalance day you see the changes, you confirm, and the orders go through your own broker into your own demat. RupeeCase never holds your money or your shares. The universe, the cadence and the rebalance history of each index are public. Compare how often Allcap rotates with the four week rhythm of Focused Largecap 20, and you will see why liquidity filters belong in the rules, not in an afterthought.

Questions people ask me

What to remember

• Price first, then time. A limit order waits its turn at its price.
• Tick sizes range from ₹0.01 to ₹5 depending on price, reset monthly.
• Nifty lot 65, Bank Nifty lot 30, from the January 2026 expiries.
• F&O stocks close through an auction after 3:15 pm since 3 August 2026; the rest keep the 30 minute average.
• Price bands cap a stock's move; market wide breakers at 10%, 15% and 20% halt everything.
• Keep each order under 2% to 3% of a stock's typical daily value.