#Stock-Market  #Basic-of-Stock-Market  #Finance 

📝 Topics Covered

  • Trading Systems (Open Outcry vs. Online Trading)
  • Types of Orders (Limit, Market, SL, MIS, CNC, etc.)
  • Market Sentiments (Bullish vs. Bearish)
  • Key Concepts (Short Selling, Share Auction, Circuit Breakers)

💻 Trading Systems

Trading systems are methods through which buy and sell orders are executed in the market.

  1. Open Outcry
    • The traditional method where traders gather physically on the trading floor and shout bids and offers.
  2. Online Trading
    • The modern method where trading happens electronically via platforms/apps. Physical presence is not required.

🛒 Types of Orders

When placing a trade, you can specify exactly how and when you want it executed.

  • Limit Order: An order where the investor bargains to `buy/sell at a specific price, not the current market price.
  • Market Order: An order where the investor buys/sells immediately at the current available market price.
  • StopLoss Order: An order to limit potential losses. Used primarily by traders.
    • SL: StopLoss (Limit)
    • SLM: StopLoss Market
  • Bracket Order (BO): A 3-in-1 order combining an initial order with a target profit order and a stop-loss order.
  • Cover Order (CO): An initial market/limit order paired with a compulsory StopLoss order.
  • After Market Order (AMO): An order placed after regular trading hours for the next trading day.

Delivery vs Intraday

  • MIS (Margin Intraday Square off): Used for Intraday trading. Positions are squared off before the market closes.
  • CNC (Cash and Carry): Used for Delivery-based trading. You buy and hold shares for multiple days.

Validity of Orders

  • Day: The order is valid for the whole trading day.
  • IOC (Immediate or Cancel): The order executes immediately; if not, any unfilled portion is automatically canceled.
  • GTD (Good Till Day): The order remains valid until the end of a specific requested day.
  • GTC (Good Till Canceled): The order remains in the brokerage system until executed or manually canceled.
  • GTT (Good Till Triggered): The order becomes active only when the price crosses your specified trigger.

📚 Books Maintained by Brokers

  • Order Book: Displays all orders you have placed, whether pending, executed, or rejected.
  • Trade Book: Displays only the orders that have been successfully executed.

🐂 Market Sentiments: Bullish vs Bearish

  • Bullish: Expecting the market to go Up ⬆️ (Going Long, usually green).
  • Bearish: Expecting the market to go Down ⬇️ (Going Short, usually red).

📉 Short Sell (Earn in Falling Market)

  • Definition: A trade where a trader sells first and buys later.
  • You short sell when you are Bearish about a particular stock or market.
  • Rule: You must cover your position before the market ends (square off the position); else, you face penalties. Short selling is meant only for Intraday in the cash market.

🔨 Share Auction (Penalties)

  • What is it? If a person short sells an equity delivery or does MIS (Intraday) but fails to square off their position by the end of the day, their shares go to Auction.
  • Process: Brokers participate in the auction market (3:30 PM - 4:00 PM) on behalf of the defaulting client.
  • Settlement Details:
    • Any Loss/Penalty is owed by the trader.
    • Any Profit (if the auction happens at a lower price) is transferred to the IEPF (Investor Education and Protection Fund), not the trader.
    • The maximum auction penalty can be up to 20%.

🛑 StopLoss (SL) Deep Dive

  • Definition: An order placed by a buyer/seller to exit a trade if the stock reaches a certain loss-making price.
  • Purpose: Acts as an insurance policy to limit losses. It is essential for Intraday trading, though optional for long-term investments.

Types of StopLoss Orders

1. StopLoss Market (SLM)

  • Best for: Highly volatile markets.
  • Mechanism: The position closes at whatever the market price is when the Trigger Price (TP) is hit.
  • Drawback: You may face Slippage (the difference between your Trigger Price and the actual executed price).
  • Note: Here, TP and SL Price will mostly be the same for a regular market, but slippage increases in a volatile market.

2. StopLoss Limit (SLL)

  • Mechanism: You set two prices—a Trigger Price (TP) and a Limit Price. The order activates at TP and executes only at the Limit Price.
  • Drawback: Risky! If the price falls too fast and skips past your Limit Price without triggering a trade, your order might never get executed, leaving you with open losses.

🔌 Circuit Filters / Breakers

Price bands put in place by exchanges (NSE, BSE) to prevent extreme volatility in a single stock or the whole market. Circuits are calculated based on the previous day’s closing price.

  • Upper Circuit: Max price a stock can hit in a day. Result: All buyers, no/few sellers.
  • Lower Circuit: Min price a stock can drop to in a day. Result: All sellers, no/few buyers.
  • Band Limits: Circuits can be 2%, 5%, 10%, 20%, or 40% based on the stock category.
  • Refresh: Circuit limits are normally refreshed every 6 months.
    • Overnight adjustments can occur to limit investor loss if highly negative news surfaces (e.g., changing limits from 20% down to 10%).

Exceptions (No Circuit Filters)

Circuit filters are not applicable to:

  1. Stocks listed in the Futures & Options (F&O) segment.
  2. The first day of listing of a new stock in the secondary market (IPO listing day).
  • Examples: YesBank, Satyam (during their significant volatile events).

Market-Wide Circuit Breakers

The exchange halts trading for the entire market if indices (like Nifty/Sensex) crash or surge. Implemented with effect from July 02, 2001. Limits are usually 10%, 15%, or 20%.

  • Historical Lower Circuits:
    • May 17, 2004 - Due to NDA govt fall.
    • May 22, 2006.
    • Oct 17, 2007.
    • Jan 22, 2008 - Global Financial Crisis
  • Historical Upper Circuit:
    • May 18, 2009 - Due to UPA re-elected.

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