TRADING IN SECURITIES CHAPTER * LEARNING OUTCOMES After reading this chapter you will be able to > Understand the online trading mechanism > Interpret the various types of price quotations > Know the different order types available > Understand various order conditions > Adjudge the suitability of each order type > Place an order to initiate trade > Differentiate between delivery based trading and intraday mar- gin-based trading With the advent of ICT revolution, the way trading took place in stock mar- ket has also changed. More and more stock exchanges are using electronic communication networks for trading. The traditional floor-based open L outery system has been replaced by fully automated trading. In India, we have adopted online trading & settlement systems, electronic limit order book, e-contract notes, etc, NSE has done some exemplary work in this di- rection with the launch of its NEAT system, VSAT technology, etc. Now, on pe sa erie itis computerized trading screens available with trading ee ite a Le ie ‘Lidl the internet-based trading facility provided NSE is world’s first exchange to use satellite communicati ) Mw i Ise s unication technolog) for trading. Its trading system, called National Exchange for Automate Ta aaa vate client server based application. BSE als fol the show with its fully automated computeri i ten BOLT (BSE On Line Trading). araces trawling £9° 70” ONLINE TRADING Para 3.1 3.1 ONLINE TRADING - AN INTRODUCTION ‘Trading in stock markets has become convenient than ever before. You can trade sitting in the comfort of your house or office using online trad- ing software, With telecommunication technology getting smarter day by day, stock exchanges and brokers have also advanced a step ahead by jaunching mobile application for trading. NSE began the revolution with its “NEAT system”, then it launched “NOW (NEAT On Web)” for internet based trading and finally introduced the “NSE On Mobile” app for its tech-savvy trading members. BSE also has its BOLT system. NSE also provides CTCL (computer to computer link facility) to its trading members wherein they can choose to build in-house software for trading on the exchange. Therefore, we see a lot of big brokerage houses having their own customized front-end software to meet their specialized needs like integration of back office operations, risk management tools, advance stock analysis, etc. E.g.: Traderacer by ICICI securities, Tradetiger bySharekhan, etc. The small brokers use the exchange developed software - NEAT and BOLT. Any person willing to enter the stock markets would require three basic accounts: 1, A bank account 2. Ademat account 3. A trading accountPara 3.1 TRADING IN SECURITIES nR Most of the brokerage houses today offer a 3-in-1 account fi acility wherein all of the above three required accounts can be opened with one financia| institution itself. Eg. - ICICI offers this facility where one can have a bank account with ICICI BANK, a trading account with ICICI securities and 4 demat account with NSDL/CDSL through ICICI securities which acts as both DP (Depository Participant) and broker. After opening these three accounts, you are ready for a roller coaster ride in the stock markets. You can chose to deal in cash market only or in both cash and derivatives segment or in other segments like commodity currency, ete. Once the account has been activated, you can commence trading on the bourses. But online trading can be a nightmare if one is not well-equipped with the trading platform and its terminology. So, let us become more familiar with the online trading system first. Fig. 3.1 snapshot shows the trading window of NSE’s popular NOW soft. ware, ie, NEAT ON WEB (the internet based tradii ea pate 3.1 NEAT trading screen It shows the vari beck rans command tabs and icons which facilitate trade. The is covered by the Market watch area which contains the list of user-selected stox ‘ormation like LTP (Last T: ¢ cks and their inf ion li Price), ATP, Best Buy Rate (Price), Best Sell Rae 5" Sie ieee (price), percentage chang?——- is ONLINE TRADING MECHANISM Para 3.2 3,2 ONLINE TRADING MECHANISM SEBI accepted the recommendations of its Committee on Internet Based Jrading and Services in 2000. It paved way for implementation of an order routing system which will send online orders of clients to the exchange through trading members’ internet systems. Order Placing: A person having a trading account with a broker who pro- vides internet-trading facility can commence online trading. He can place orders to buy or sell with a trading member, using the front-end software orthe mobile app. These orders will then be routed by the trading member to the exchange for execution. The orders received by the exchange are sorted and matched on a real-time basis continuously. Order Sorting: Orders are sorted on the basis of best price. Best buy order js the one with the highest price and best sell order is the one with lowest ice. Therefore, all the buy orders are sorted in decreasing order of price andall sell orders are sorted in increasing order of price. Orders with same price are sorted on the basis of their time stamp, ie, orders received first are placed on top of orders received later in time. Order matching and execution: NSE uses a price/time priority order matching principle for execution of trade. Price priority means that orders with best price get priority over other orders. Time priority means that out of the two orders placed at same best price, the order entered first will get priority in execution. ‘Trade settlement and confirmation: All the executed orders will be shown in the trade book of a client’s account. Investors also receive SMS inti- mation for the trades on a daily basis. After settlement of trades on T+2 basis, e-contract notes acknowledging trades are sent to clients via email. Securities bought are shown in the demat account of the investors and the bank accounts are deducted for the value of trade. Similarly, sell orders are also reflected in demat account and cash balance. Brokerage charges and other expenses: All the brokers charge their clients Some brokers provide online trading for providing intermediary services. facilities for free, while others charge a meager amount as an annual fee for using the trading software. Investors also have to bear the Securities Transaction Tax (STT) for every trade, It is important for investors to ac- count for these expenses while trading. Profits must be sufficient enough Cover the expenses of trading. i How does a trade happen? to begin trading in securities market, an in account. So, he should transfer money westor must have funds from his bank accountPara 3.3 TRADING IN SECURITIES 4 into his trading account. However, trading can begin with nil balance jp, Demat account. to De Step 1: A buy/sell order for a particular share at a said price is placed by the investor at the terminal from his trading account. Step 2: The order is routed through a broker to the exchange. Step 3: Once a suitable counterparty is found for the order, the order i, processed. Fie Step 4: Once a suitable buyer/seller is fixed and a suitable price is arrived upon, the broker is intimated about it. The exchange also verifies the details of the parties involved to make sure nobody defaults and transfer of ownership happens smoothly. This process is known as settlement which happens at T+2 days (working days). Step 5: The shares are credited/debited from your trading account and funds are debited or credited correspondingly into your trading account. If theinvestor desires so, he can transfer the funds received by selling shares from his trading account into his bank account. In case of purchase, the shares bought will be sent to Demat account of the investor on the next day of trade. 3.3 PRICE QUOTATIONS Stock quote is the price at which a stock is quoted at the exchange. A price quote of a stock or an index provides information like bid price, ask price, last traded price, 52-week low price, 52 week-high price, etc. oe a are available in both print and electronic media. Business M Ts like economic times, business standard, etc. provide price quo- tations for indices (NIFTY, SENSEX, sectoral indices), individual: Sacks in NIFTY & SENSEX, other traded stocks, Futures & options contracts, etc. Newspaper quotations contain historical prices and other related infor- mation, Now-a-days, price information can also be accessed from various online websites likenseindia.com, €conomictimes.com, mone trol.com, etc, Online sources show real-time price information. seh esis. For trading in the market one n i t ieeds to know the price there is a multitude of prices in a given price wes shall we focus upon? Let us understand the newspapers and online sources, and quantity, but quotation. So, which price Price quotations as seen inae! 15 PRICE QUOTATIONS 3.3.1 Understanding Price Quotations from Newspaper 1631.95 11S 4483/44.44. Idea Cellular Tears JAdaniPorts 26450 3.02 0.70 1789/1939 Indusind Bank 1232.90 309 1.84 -/3036 fambuia Cem 25890 284 0.75. 6363/53.17 Infosys 103810 020. 611 17.16/1484 ‘asian Paints 119300 278 159° 62.75/6849 ITC 24230, 039 861 29.61/29.45 JaurobPharma 870.00 1.70 069, 23.85/31.73 KotakMahBank 788.05 1.42 2.82 36.11/5480 IasisBank 55090 1.76 2.72 15.77/1688 L&T 1470.70 262 403 2692/2659 BajajAuto 288090 188. 124 2203/2305 Lupin 149355 049 1.05 2564/2064 BankofBaroda 168.90 0.90 047 -/- Mah & Mah 144385271 1.96 27.93/27.42 phartiAirtel 318.70 1.50 124 2363/1825 Maruti Suzuki 5681.00 3.72 221 3652/3528 Bhartiinfratel 362.75 -0.70 057. 26.85/27.94 NTPC 15060 176 110 1219/1185 BHEL 13720 186 036 “/- ONGC 260.25' 140 203 15.76/1507 Bosch 275295 -020 060/578 Power Grid 18120 263 1.17 1576/1467 ppc. 627.95 247 120 1137/1183 Reliance Ind 109070 0.65 570 1240/1235 cla 58885 152 088 3880/4799 SBI 25530 161 232 2316/2257 lcoalIndia. «= «32790 1,74 124 1526/1306 Sun Pharma 78705 193 241 2906/- DrReddys 3160.55 1.71 1.17 3530/4192 TataMot-DVR 346.10 164 051. -/- [Eicher Motor 2579625 390 102 $6.72/59.97 Tata Motors 54080 1.11 3.07 1485/6478855} GALL 38585 2.99 063 21.74/1525 Tata Power 7645 139 041 2935/3058 IGrasimInd 4900.20 132 092 1717/4055 Tata Steel 38285 230 075 -/8:79 HCL Techno 80860 1.09 133 1464/1746 TCS 2411.70 -079 372 19.09/2058 /HDEC 142550 2.30 663 2094/2970 Tech Mahindra 420.70 020 076 12.63/13.02 IHDFCBank 1287.20 1.13. 7.56 25.60/2552 Ultra Tech 392845 2.00 1.19 4355/4571 Hero Moto- 352115 3.15 135 2273/2154 Wipro 47895 000. 152 1330/1434 ‘corp Hindaleo 15410 092 058 12086/40007 Yes Bank 127025 124 123. 21.17/19.69 UL 86875 0.10 1.81 46.06/4480 Zee Enter 57885 587 093 5559/6729 HCICHBank 256.15 1.59 438 1464/1659 Nifty 50 8738.1 1.47 100.00 2057/2138 Para 3.3 FIG. 3.2(a) NEWSPAPER QUOTES OF NIFTY50 STOCKS Fig. 3.2(a) shows newspaper clipping from Business standard published on 4th October, 2016. It contains price quotes as on 3rd October, 2016 for IFTY50 stocks. Each price quotation comprises of the following: ICICI BANK Company Itmentions the name of the company c Close priceis the price at which trading Itshows the price at which the last trade happens in a stock on a trading day. ICICI Bank’s stock closed at & on a share closes on a particular day. | 256.15 on 3rd October, 2016. It stands for percentage change. It shows the percentage change in the price of stock from the previous day's ICICIBank’sstock hasincreased by 1.59% on 3rd Onanery closing 2016 when compared to its ae price on 30th September, 2016"Description — ‘TRADING IN SECURITIES aN 6 peli = (the previous trading day be. cause markets were closed on Ist & 2nd October). 4. Wt) would add up to 100%. Weights also depi Jeading players in the mar! the market capitalization, index. Itisthe weightage of astock in an. index. Weights of all the 50 stocks of NIFTY50 ict which are the ‘ket. Higher higher the weights assigned to the stock in an TcICi Bank has a 4.38% weight in the formulation of the NIF. TY50 index. 4.38% of market capitalization of NIFTY can be attributed to ICICI Bank. ITC has the largest weight (8.61%) in Nifty 50 5.P/E(C/S) lated as follows: Price Earnings Ratio = Market price per share EPS stock market. P/E refers to the price to earnings ratio of a particular stock. It is calcu- P/E ratio indicates the relative val- |. uation of the share of a company in ICICI Bank has a Consolidated P/E ratio of 14.64 and stand- alone P/E ratio of 16.59. C/5 refers to consolidated or standalone. & ALL OTHER TRADED STOCKS PE s2WHL Consolidated P/E ratio is for the parent company and its subsidiaries as a whole. It tells us the overall health of the group of companies. Whereas, standalone P/E ratio measures the price-earnings ratio of the specified company only asa standalone entity. ‘Company (Pr.Cl Cr. Cl, [Vol] sp 672 1525079463 456 2550/1257 5 India (17883, 90) 1318822. 12KB... |#h Miles Sta (197635) 2062.11 44.1 KB. [nats Devs ODO ISS SAPARD DBA TIAN [Aart Inds (20.65)48 79198 51K), 196 6asvats 256/143 [Aba Ottsh(195 207208 8 1.09%. [As clin (8141.90) 160.7124 0K A 14347955, [abbott India A744 75YATIOASLLOIKYD... 989 6042/4854 [Accelya (1340.05)1341.85(2.26K Al A787 NA 44/26 NA 203/123 Aegis Log (153.60) 161.05 [8B2L]B. ns Bn ro Tech FA (S05 1S)SISAST4ASKIB 0 SOA 687/484 Bove 235 338/210 hiuwalia Co, (299,80) 305.6513 81K) Fig, 3.2(b) Newspaper quotes of Individual stocks 7329/702 “AIA Engg (128945) 131 L4(57.96K)A...... 287 AKZO Noble 1(1697.70)1689,7(20.6K]B..._ 35.7 1745/1205 “Alembic (382038.4(1 33.78, Ba 52 ‘Alembic Pharma (6548066675 79.91K)A 167 747/58) “Alken Labs (1661,25)167845 [83.49K)B... 298 1856/11°) Alleargo Log (8O60)187ASTLAILIB..nn 179 222/155 "Amtek Auto (43.95)45.15[1.57M)A... ge gre 56128) “Anant Raj (55.45) 56.8 (9.66... dot 65/28) ‘Apar Ind (543,05) 561.05(7.43K)B. aa 634/403) APL Apolo Tb (869.10) 862.55 [L08SK]B... 169 1010/5 “Asahi () G1(18720)19865(7733K}B..... 528 207/15) 209/115 “Asiana Hsg (140.75) 141,7(43.92K]B... Ashoka Build(17045)175.4{1,07L JB, 22/itt|. 7 PRICE QUOTATIONS Para 3.3 Fig 3.2(b) indicates the price _ « ; quotations for other stocks i C Each price quotation has the following ee in the market. Column name Description Example _| Company It mentions the name of the company Aegis Logistics | Pr. Cl Tt stands for previous close price. Itis the price at which trading on ashare closes on the day previous to a particular day. This stock closed at 153.60 on 30th September 3.| Cr. Cl It stands forcurrentclose price. It is the price at which trading on a share closes on a particular day. It closed at 161.65 on 3rd October. It is the volume of trading in a stock ona particular day. Volume means number of shares traded on the exchange on a particular day. ‘A total of 8,82 lakhs of Acgis Logisticsshares were traded on 3 October, 2016. Ttisa group Bstock of NSE. It is the group to whicha particu- | Grp lar stock belongs eg.:A,B, etc. All thestocks traded onan: exchange are classified into various groups. . | PE It is the P/E ratio of the stock. |Ithas a P/E ratio of 47.3 52W H/L | This column shows the 52-week | The ‘stock of Aegis logistics has touchedalow of 72and high or low price of a particular stock. seen a high of 173 in pre- vious 52-weeks of trading. quotations il quotations relate in Chapter 9. Please in derivatives market the price quo! closing price, raded, no. of contr’ acts outstant .d to future: refer to Chapt tations for the Futures day’shigh/low prices; it acts, value o! ding on a particul .s and options contracts ar er 9 for further details. market. Apart from alsocommunicates f traded contracts, Jar day) and e explained inPara 3.3 TRADING IN SECURITIES 4 Instrument Open, High, Low, Close ieee [Trd Oty, Contracts, Traded Value#] Date Index futures on NSE Nifty 8682, 8788, 8656.25, 8779.1 [122L, 162104, 1062164]. 11 2BOL 27/10/16 Nifty 8713.85, 8828.55, 8697.7, 8819.4 [4L, 5345, 35198). pesAlLt 24/11/16 Nifty 8764.85, 8883.95, 8749, 8874.05 [IL, 1822, 12070}... AL 29/12/16 Nifty Bank 19511.15, 19707.5, 19450.3, 19685.35 [30L, 74466, 584300]. 27/10/16 Nifty Bank 19627, 1981.6, 19569.9, 19795.55, [472K 1179, 9303]... + 653K 24/11/16 $ & P'500 21655, 21665, 2161.25, 2165.5 [753K, 301, 1630)... 21/10/16 Total [158L, 245217, 1704665.3).... INDEX FUTURES ON SGX* Nifty 8652, 8791.5, 8633.5, 8788 [-, 62122, 1092] 27/10/16 Nifty 8648.5, 8700, 8648.5, 8700 [-, 5, O]. . 24/11/16 Nifty 8786.5, 8787, 8786.5, 8787 [-, 2, 0]. . & 29/12/16 Total [-, 62129, 1091.99] 4L STOCK FUTURES ON NSE ACC 1613.55, 1649, 1609, 1643 [7L, 1715, 11189]. 27/10/16 Adani Enter 66.65, 67.8, 66.45, 67.4 [44L, 546, 2938] 27/10/16 Adani Ports 260.25, 268.35, 260.2, 266.25 [95L, 3798, 25210] 27/10/16 Adani Power 26.4, 26.4, 25.2, 25.75 [161L, 803, 4105]. 27/10/16 Adi Bir Nuvo 1381.5, 1401.35, 1380, 1389.2 [9L, 1265, 13202]... 27/10/16 Ajanta Phar 2066.95, 2113.95, 2033, 2099.35 [3L, 729, 6069]. 27/10/16 Allahabad BK 78.05, 80.45, 77.75, 80 [179L, 1787, 14129].. 27/10/16 Amara Raja 1022.95, 1040, 1012.8, 1036.35 [6L, 993, 6151}... 27/10/16 Ambuja Cem 254.45, 260.75, 253.75, 260.45 (37L, 1495, 9658]. 27/10/16 27/10/16 Andhra Bank 57.05, 58,25, 56.8, 58.1 [104L, 1042, 6007]. Apollo Hosp 1340, 1356.8, 1319.85, 1351.75 [3L, 798, 4280}... FIG, 3.2(c) NEWSPAPER QUOTES OF FUTURES CONTRACTS 27/10/18” PRICE. QUOTATIONS Para 3.3 3.3.2 Understanding Price Quotations from Online Trading Platforms gt atest PY Oty Best Dy Rate Hest se FIG. 3.3 ONLINE REAL TIME PRICE QUOTATIONS Letus look at the various Price quotations available in the stock market on real time basis. As trading continues, these prices keep on changing in frac- tions of a second. Some of the commonly used price quotes are as follows: Ns L Bid Price - A bid quotation is an offer to buy at a specific price which hs is called as the bid price, Best buy price is the highest price that i someone is willing to pay to buy one share of a security. So, it is the 6 price which you shall look for when you want to sell a share. 2. Ask Price - An ask quotation is an offer to sell ata specific price called as the ask price. It is also called as offer price. Best ask/sell price is the lowest price at which someone in the market is willing to sell ie a particular stock. So, it is the price which you shall look for when Is you want to buy a share. The difference between the best bid price and best ask price is called as Bid-ask spread. Spread is an indicator of liquidity of a stock. Narrower the spread more liquid or highly traded is the stock. Tick size - It is the minimum allowable price variation in a security, usually determined and duly notified by the exchange on which the urity trades. Currently, in India, it is 0.5 in cash segment. All types price quotes move up or down by 0.5 rupee only. Eg. -2 255.55, 255.60, 266.65 and so on. A price quote will never look like % 255.83 or 255.87. (Last Traded Price) - The price at which a transaction occurs is ited as the transaction price. The price at which the most recent action in a security gets executed is called its last traded price TP). It is determined by the market forces, nn - It is the price at which the first trade of the day happened. ious Close - It is the price at which the last trade happened in vious trading session (day),Para 3.3 TRADING IN SECURITIES 6. High - It is the peak transaction price achiev! particular day. . 7. Low - It is the lowest ever transaction price on a particular day. an 80 ed by the security on g achieved by the security ‘ ‘i i a parti 8. ATP - It is the average transaction price of a security on a particular day. 9. Circuit breakers - If index price breaks these circuits (in either aie ; tion), then trading is halted in a particular index or across markets, Upper circuit is the highest price that an index can touch on the ppee side whereas Lower circuit is the least price to which an index is allowed to fal] in a given trading session. NSE rules regarding circuit breaker . The index-based market-wide circuit breaker system applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%, 2. The market-wide circuit breakers are triggered by movement of either the BSE Sensex or the Nifty 50, whichever is breached earlier. 3. Exchange shall compute the Index circuit breaker limits for 10%, 15% and 20% levels on a daily basis based on the previous day’s closing level of the index rounded off to the nearest tick size. Trigger limit | Trigger time Market halt duration 10% Before 1:00 pm. Ator after 1:00 pm before 2:00 pm 45 Minutes At or after 1:00 pm upto 2.30pm __| 15 Minutes | At or after 2.30 pm No halt | 15% Before 1:00 pm 1 hour 45 minutes 45 Minutes _| On or after 2:00 pm 20% Any time during market hours Remainder of the day [Source: NSE website eT Remainder of the dayLe si 1 PRICE QUOTATIONS Para 3.3 Rules regarding price bands on NSE pal is ae are applicable on securities as below: (@ Daily price ands of 2% (either way) on securities as specified by the Exchange. b) Daily price band: Ft ® Seeharize. ands of 5% (cither way) on securities as specified by the ily pri i oO te ye Fcc, ee of 10% (cither way) on securities as specified by (d No price bands are applicable on scrips on which derivative prod- ucts are available.” lers at non-genuine pric- “In order to prevent members from entering ord ange of 10% for esinsuch securities, the Exchange has fixed operating r such securities. [Source: NSE website] Electronic order book Traders can also see detailed information and price quotation for each security. A “snap quote” can be opened by “double-clicking” on a specific sccurity.It will display the five best bid ‘and ask prices and the correspond- ing order quantities. The following snapshot in bro Limited. Fig, 3.4 shows the snap quote of Larsen & Tou- =| BID AND ASK PRICE. FIG. 3.4 FIVE BESTPara 3.4 ‘TRADING IN SECURITIES 8 3.4 TYPES OF ORDERS are, he shall focus on the ask So, now we know that if one has to buy a sh price and on the bid price if one wants to sell a share. A trader can now place an order using the online trading platform by filling the quantity anq price of a stock. There are various types of orders available depending upon the trade objective - a guaranteed trade or to seek a specific price, immediate execution, etc, It will also provide some more option: order conditions. A trader can place on an order: 1. Price related conditions 2. Time related conditions 3. Quantity related conditions These will discussed in detail in section 3.5 On the basis of price conditions, orders are classified as follows: s for the order. These are known as following three types of conditions ORDERS, STOP LOSS MARKET STOP LOSS ‘ORDER | LIMIT ORDER ORDER eee | FIG. 3.5 TYPES OF ORDERS You can place the following types of trade orders through the broker: 3.4.1 Market order An order to buy/sell a share at current market price is called a market order. It is executed almost instantaneously at whatever price is prevailing in the market at that moment. There is no option to specify the price is this type of order. It guarantees a fill, ie, execution of order but doesn't guarantee a specific price. There is a risk of sHppage in a market order. Slippage is the differenc’ veen the expected price of trade and the actual market price at which happens. It occurs due to a minute time-lag between placing an 0 let ‘execution. Higher the volatility in a share, the higher will be this risk. n - An investor sees a price of & 45.90 on the screen at 11:05:30 's to immediately buy it using a market order. By the time he it is 11:05:55 hrs and the price has changed '°| a 83 TYPES OF ORDERS Para 3.4 7.45.95.The order gets executed at i aselhitianlaiinas 45,90) is called as the slippage, at 245.95, This difference of % 0.05 (45.95- a FIG. 3.6 MARKET ORDER Limit order ler to buy/sell a share at a specific price or better is called as a limit : Ithelps in setting a limit on your transaction price, ie. the maximum for a buy order and the minimum price for a sell order. So, a buy der will be executed at the limit price or lower whereas a sell limit will be executed at limit price or higher. tion - If you want to sell 100 shares of Snowman Logistics only at per share but the current market price is 7 64.5, then the suitable for youisa limit order to sell with limit price specified at ® 63.30.Para 3.4 TRADING IN SECURITIES 84 FIG. 3.7 LIMIT ORDER An important consideration over here is that a wrong use of limit order would result in losses. e.g.: If you place a buy order at a limit price which is above the current market price, the order would immediately be executed. B Similarly, a sell order at a limit price that is below the current market price would instantaneously get executed. This is so because buy limit orders specify the maximum price (limit price) for buying a stock and if the limit price is above the current market price, then itis very well within the maximum limit set by you. This will result in instant execution of the order even before the trader can realize his mistake. 3.4.3 Stop-loss order is reached. It is an order to buy (or sel security rises above (or falls below) a specifi stop price is also called as trigger price, ice the trigger price is reached, a market order (prevailing market price) a limit order (fixed or predetermined price) is sent to the exchange for85 TYPES OF ORDERS Para 3.4 execution. Support and res sell and buy stop loss orde stance points are the best as trigger levels for 8 respectively, So, stop loss order is a normal market or limit o1 A trigger price activates an otherwis sell. You would place a sell SL order if buy SL order if you have sold short as rder but with a trigger price. dormant stop loss order to buy or you have bought a security and a curity, Illustration - You have bought a stock at % 100 and you want to limit the Joss at € 95, you can place an order in the system to sell the stock if the stock falls to € 95. Such an order is called as a Stop Loss order. Fig.3.8 shows a SL limit order for buying 100 shares of Snowman Li SSeS LL Lancers - S333 is ogistics. FIG. 3.8 STOP LOSS BUY ORDER # Your trigger price should be below the current price for selling stop order and above the current price for buying stop loss order, otherwise stop loss will get triggered immediately, are two variations of stop-loss order available: SL order - Stop loss (limit) order This type of SL order will send a limit order to the exchange when e trigger price is reached, ration - You hold shares of Infosys bought @ & 1200 per share. ing a long position means you expect the price to rise. But, in the price falls you want to restrict the loss to, let say, € 10 per » ie, you want to sell at € 1190. The support level of Infosys is dat % 1192,Para 3.4 TRADING IN SECURITIES 86 This buy position requires a sell SL order with a trigger price of z 1192 and limit price % 1190. This SL order has a consequence that *the moment price falls below % 1192 a limit order to sell at 2 1199 will be sent to market and if price further falls to % 1190 your selj order will get executed”, Required SL | Necessary condition Current position Trigger price level order és LONG (bought | sell SL order | Limit price < Trigger | Near Support level | shares) price é | SHORT (sold buy SL order | Limit price > Trigger | Near Resistance | shares) price level | SUMMARY TABLE However, remember that a SL limit order doesn’t guarantee a fill of the order because the security may or may not reach to your specified limit price. It may bounce back from support levels or may never be able to cross the resistance levels. So, if you want to ensure a trade, then go for SL-M order. (i, SL-M order - Stop loss Market order This type of SL order will send a market order to the exchange when the trigger price is reached. It is meant for immediate action when the price moves against your expectation. A SL-M order guarantees execution but not the trade price. Illustration - You have bought 1000 shares of IDFC Bank at % 70 per share. The maximum loss you can take from this trade is of 5 per share. So, you require a sell SL-M order with a trigger price of % 65. This SL order has a consequence that “the moment price reaches % 65 a market order to sell will be sent to market”. Your 1000 shares would be sold at marke! price immediately. Trail stop loss See. loss helps in preserving capital from a loss-making trade, but it shall porary modified to catch the potential profits from the trade. So. once 1 ie tra ei in ee stop loss should be moved such that trade is at zero risk even if trailed (initial) stop loss gets triggered. 3.4.4 After market order (AMO) These are the order which youcan place while the markets are closed. AMO can be placed few hours before (after) the opening (closing) of markets:a ORDER CONDITIONS Para 3.5 FIG. 3.9 AMO (AFTER MARKET ORDER) Someother types of order are- Basket order, Bracket order, Cover order, et: 3.5 ORDER CONDITIONS trader can specify some conditions for the execution of an order. Fol- ing are the common types of order conditions: Price related conditions ling member can choose the price of his order. He may specify the price, opt for the market price or feed a trigger price into the system at an otherwise dormant order will get activated or tr iggered from the loss book, These have already been discussed in detail in section 3.4 related conditions JAY means the order is valid only for the day on which it has been ered, If not executed during the day, it will stand cancelled there c tands for Immediate or Cancel which means that if the order immediately executed it will stand cancelled. Il cancelled (GTC) means an order will remain valid till it lied by the trader himself. This condition renders @ longer to the order because the order will be active 1" the systemPara 3.6 TRADING IN SECURITIES 88 er of trading days till the trader withdraws. Maximum ae tie such orale can remain active is notified by stock exchange from time to time. ‘ Fy i 'v) Good till day/date (GTD) condition allows a trader to limit the va. a! lidity of the eae " a uae day/date. Order stays in the system for matching for the number of days or till the date mentioned by the trader. Maximum number of days for which such orders can remain valid is notified by stock exchange from time to time. 3.5.3 Quantity related conditions (#) Allor none (AON) - All or none condition ensures the trader that the only full order will be matched against. Either the whole quantity will be executed for a matching order or no quantity will be filled, Till the full order finds a corresponding order match, it will stay in the order book. (@) Minimum fill (MF) - Minimum fillets a trader specify the minimum quantity ghat must be filled for execution of an order. SOG act to buy, 10,000 shires of a stock 500 shares would be id Price. Once 500 shares . This will continue till all ensures order exe, ‘cution to the t the market pric € due his hug k exchanges issue SEBI also issues rader without puttin any ssure e demand to buy, Ba Hey ear eressur Buidelines for these ord iti yl i er COn ime Aiectives to allow /disallow thee sons {fom time to W these conditions. ING AN ORDER? the procedure of placin, : 8 an order usin, wing are the steps for sending an order to rei aie9 PLACING AN ORDER Para 3.6 }, Click on the “orders and trades” tab on the toolbar. From the drop down menu, select “Buy order entry” or “Sell order entry” option as desired. For example, if one selects the sell order entry option, a sell order entry dialog box will Pop-up as shown in Fig. 3.10 Alternatively, you can also “right-click” on the stock you want to trade to select these options. y ee —— 29(e (3G. 5 = 7 FIG. 3.10 SELL ORDER ENTRY You would be required to fill the following options in the order entry dialog box: a. Exchange segment - It is the market segment in which you want to initiate a trade. e.g: NSE, BSE, NFO (NSE futures & options), MCX (commodities), etc. b, Order type - It is the type of order you want to place, e.g., mar- ket/ limit/SL order, etc.TRADING IN SECURITIES FIG. 3.11 ORDER TYPE PRO/CLI- PRO refers to Proprietary trade and CLI refers to a client trade. All the small investors are clients so, the default option is CLL d Inst name - Nature of instrument, e.g. EQ for equity, FNO for derivatives, etc. € Symbol - Trade symbol of the security for which the order is to be placed. If unaware of the exact symbol, you can type just 2-3 initial letters of stock’s name and then choose from the drop down menu. If you open the order entry dialog box by using the right click option, this box will automatically be filled by the symbol of that security. ; f. Type, strike pri in derivatives, & Oty. Fill in the number of shares you want to buy/sell. It must be in multiples of regular lot si ° » expiry date - Relevant only for placing order h, Price - Fill the specific pri L i € at which you want to buy/sell. It should be in the multiples of tick si However, this box will be inactive for a market order because such an order is executed at the best price that prevails in the mar ket at the time of its entry/execution, Tr price - It indica es the Trigger price of a Stop loss order: Therefore, it is inactive for a market and limit order. It is theof PLACING AN ORDER Para 3.6 Price at which the stop loss order will be triggered and an order will be sent to the exchange, } Dise aty - Disc qty stands for disclosed quantity. It is a very significant column for large orders, You shall fill that many number of shares which you want to disclose to the market. This quantity will appear in the order book. It helps in reducing the impact cost of large orders, Forinstance, if you are buying 1000 shares of Infosys but for the fear of non-execution, you want to disclose only 600 as quantity to the market; then you fill 600 in this field. Kk, Prod type - It means the product type of a transaction. Various product types available are: MIS (Margin Intraday Square off), CNC (Cash and Carry), NRML (Normal). These are explained in detail in the next section 3.8 FIG. 3.12 PRODUCT TYPE alidity - It specifies the time conditions of the order. There are two ions available in this, namely, DAY and IOC. default, DAY option is selected, However, IOC option is aE huge quantity orders which result in impact costs if not he aneously, For example A bulk buy order will put upwar: Fe on price, thereby increasing cost for the buyer.Para 3.7 TRADING IN SECURITIES 92 FIG. 3.13 VALIDITY OF ORDER m. Client id, client name, participant code - These will appear au- tomatically once you have logged into your trading account. n. Validity date, no. of days - It specifies the time condition of the order. These options are filled for GTD orders, specifying the date or number of days till which the order shall remain valid. This option is not available for all securities or markets. 3. After filling all the required information, click on “submit” to send your order to the exchange. Once submitted, it will appear in your order book till its execution. It will show “OPEN” as the order status. The moment your order gets a fill, ie,, it gets executed on the exchange, the order status will change to “COMPLETED” and anew entry will appear in your trade book for the same. 3.7 VIEW/MODIFY/CANCEL AN ORDER All the orders submitted during the day wi i 'y will appear in the order book. Order book can be accessed from the “orders Baa trades” eo ithe pop up dialog box, you can see all the orders f “aa ne play orders” tick box. ers for the day by checking the “dis Each order's status is also displayed along wi ils Hil 1 ; 2 with othe like symbol, price, quantity, ete. All the pending orders will pea the status ane pilibe filled/executed orders will display easniated: as the tatus, c i i si st ua you bappen to have cancelled an order, then its order status willDELIV is 93 ERY-BASED VS. MARGIN BASED TRADING Para 3.8 qrcan be seen from the following dialog box in Fig: 3:14 FIG. 3.14 ORDER BOOK All orders can be modified till their execution. To modify an order, simply select that particular order and click on modify tab. Enter the changes in the order entry dialog box and submit. unfilled or partially filled (for the untraded portion) orders can be can- To cancel an order, select the desired order and click on cancel tab. ‘order status would change to “cancelled” immediately. JUCT TYPES - DELIVERY-BASED VS. MARGIN BASED TRADING "It in- the fields in every order entry box is that of “Product type the nature of your transaction. Following are the popular product fered by brokers: ‘ONC (Cash And Carry) - for delivery based transactions ‘means that the transaction is done without using any margin money leverage offered by the broker. It is us d when the trader/inves- has an intention to take the delivery of the The investor have 100% cash in his account to pay for the transaction or be willing to pay it within settlement eycle, There is no auto off in CNC. ‘using CNC, the shares bought would be sent to your demat [+2 days. You can sell these shares anytime using CNC loreover, you can't sell shares using CNC without owning demat account.d “4 4 ‘TRADING IN SECURITIES | Para 3.8 2. MIS (Margin Intraday Square Off) - for intraday transactions / It refers to a product type that allows the trader to use the margin money facility offered by the broker. Margin money may be 5 times or 10 times the cash balance available in your account. Illustration - If you have 10000 rupees in your account, and your broker provides a 5 times margin, then you © buy stocks worth 50000 rupees for intraday trading. But you will have to sell off these Shares on the same day; else they will be automatically squared off in the last few minutes (around 3:00 pm) of trading session. So, it is beneficial for day traders who generate huge volumes but trade at small price differentials for profit. They can do big transac- tions without having to pay in that much money. But the flip side of the coin is that MIS can cause heavy losses if the stock doesn’t move in the expected direction. ailable depends on the stock youare The amount of margin money av: | dealing in. Good quality stocks enjoy more leverage as compared to | tmedioere or penny stocks which have very less or no ‘margin avail- able. Brokers provide greater leverage to their regular clients. ‘Advantage of MIS over CNC 1. Low brokerage charges on MIS transactions 2. High margin facility 3, No risk of overnight news impact b; sition to next trading day. The intraday position: off on the same day. -@2- A day trader can convert How to convert MIS into CNC or vice vers ‘CNC before it is automatically squared off his MIS buy position into ‘on the exchange. However, he must have 100% cash in his account to actually take delivery of this conversion. 3, NRML (Normal) - hybrid option (both delivery and margin trade possible) This product type is also similar to CNC. It doesn’t offer any leverage facility or avery less margin money. The trader /investor will conduct anormal transaction by paying cash. There isno tension of automatic intraday squaring off. NRML is @ delivery-based product which is tailor-made for short: ibility to pay remaining cash for your term investors. It gives a flexi purchases within 5 days from the exchange payout day. Illustration : Mr. X purchases 100 shares of Reliance Industries Ltd. 7310 in NRML Margin being 259, It means Mr. X should have 100) = & 7750 in his account to ‘commence this trade- (25% x 310 X yy carrying forward the po- s are squared< BUYING AND SELLIN¢ J OF SHARES Para 3.9 Ing & 23250 in ne Ared off However, he can pi toh hieocen DAY remain: which his position \ "i Will be 8q xt five days, failing FIG. 3.15 VARIOUS PRODUCT TYPES 3.9BUYING AND SELLING OF SHARES: USING BROKER’S/ANALYST’S RECOMMENDATIONS Brokers and analysts read fi ‘ancial statements, listen to conference talks, interact with top management, analyse news items and then give a BUY, SELL or HOLD recommendation on a specific company’s share. Such fecommendations can be used by investors to take their investment deci- sions. It saves time and effort of : mall investors for whom itis both difficult _ and infeasible to do such analysis. However, an investor should exercise wing precautions while using broker's advice or analyst's recommen- ion to buy or sell share: 1 An investor shall be well versed with the meaning of these recom- mendations before actually using them, He shall understand what does a sell, underperform, hold, outperform, or buy mean. Itis advisable to understand the analyst firm’s rating scale to find ow aggressive is the recommendation. Analysts use complex rating Scales while giving recommendations which can have different inter- Pretations depending upon rating methodology used, For example: Strong sell, weak hold/under weight/reduce, neutral, accumulate/ Werweight/add, strong buy. So, a buy recommendation can mean strong buy, moderate buy or few additions on dip:TRADING IN SECURITIES % 3. Moreover, an investor shall be careful whether the broker Or analy., is specialised and learned enough to give advisory services. Casygy tips based on personal opinions of amateurs can be harmful, 4. An investor shall always be attentive about ownership or shareholg. ing disclosures given with the recommendations because the analys firms and brokerage houses may have a vested interest in it. errr