When a trade occurs at a distant price from the current market price then they are called as freak trades. Generally, these happen due to shallow market depth, i.e., low liquidity or when your trade is overlapping with a huge market order.
Whenever you are placing market order, a natural risk of losing money is always present because of a freak trade. In contrast, a limit order assures price execution at a definite price rate to evade freak trades, however, there is no promise of the order fill itself.
Thankfully, there is a solution to enjoy the advantages of both orders types, i.e., the price protection of a limit order so you don’t have to worry about freak trade and at the same time have the order fill promise of a market order.
Using limit orders as market orders – If you place a buy limit with a rate exceeding the current market price, your limit order will function as market order, lending you with the market protection of your limit price.
Let’s take an example
Consider the current market price of XYZ company is Rs. 300.
Limit buy order is Rs. 305.
The price is Rs. 300 and you want to buy the stock at a greater price, then this order will act like a market order and quickly execute. All the quantities up to Rs. 305 get filled. If in case, there is a big market order that coincides with yours it will cause the price to increase but your limit order will be there to protect you from any hikes by restricting your purchase price to Rs. 305 and nothing more.