Order and Margin

1. PRESENTATION ON SECURITY TRADING
(TYPES OF ORDER AND MARGIN)
Presented By:
Vikash Barnwal
Assistant Professor
SAPM

2. DIFFERENT ORDER TYPES IN STOCK MARKET
The evolution of the internet has made our daily lives much easier.
As an investor today, you can buy and sell stocks by yourself right
from the comfort of your home or office. To do so, you need to
place an order with your broker, who then places a request to sell or
buy stocks on your behalf.
But in order to get the best outcome possible, it is necessary that you
know the different types of orders in the market.

3. WHAT IS AN ORDER?
An order is nothing but an instruction that an investor gives to buy or sell stocks
on a trading platform or to a stock broker.
There are different order types in the market.
Here are a few important order types you should know:
1. Market order : A market order is an order to buy or sell a security at current
market prices. Once placed, this order is to be executed immediately. The
important feature of a market order is that it guarantees the execution of the
order. However, the price at which the order is to be executed cannot be
guaranteed.
For example, imagine that the current market price of stock X is Rs 120.
You place a market order to buy the stock at this price. Your order would
be executed immediately. However, there’s no guarantee that the security is
bought at the ‘ask’ price of Rs 120.

4. Limit order
A limit order allows you to place an order in a security at the price you
want. So, a buy limit order means you are ready to buy the security at a
specific price or lower. And a sell limit order means you wish to sell the
security at the limit price or higher. There is however no guarantee that this
order will get executed, unlike Market Orders.
This can be understood better through an example.
If you put a buy limit order for a stock at Rs 50, it means that you are ready
to buy the stock at a price equal to or lower than Rs 50. Similarly, a sell
limit order for a stock at Rs 50 means that you would like to sell the stock at
Rs 50 or higher.

5. Stop order: This is an order to buy or sell a stock whenever the stock
price reaches a specific value. This value is known as the ‘stop
price’. The stop order remains dormant until this price is reached.
And once the price is reached, the stop order becomes a market
order or limit order and your order is placed.
A stop loss order is quite useful if you don’t have the time to track
and execute stop losses on your trades during the day.
For example, you know that you would face a big loss if stock X
falls below the price of Rs 35. But since you cannot monitor the
stock regularly, you can put a stop order to sell the stock once it
reaches this level.
This way, you can avoid a major loss. That’s the reason why this
type of order is also known as a ‘stop-loss’ order.

6. Cover order: cover order is a combination of a market order and a
stop-loss order. This means, your buy (or sell) order is always a
market order. In addition, you would also have to specify a
Stop-Loss Trigger Price (STLP) and the limit price. This way, your
risk exposure in the market automatically reduces.
However due to the leverage that is given in Cover Order, this SLTP
needs to fall within defined ranges depending on the security and
your broker. Through a cover order, you can get the advantage of
lowering your risk and ensuring that your losses are limited.

7. Margin Intraday Square Off Order (MIS):As the name
suggests, this is an intraday order. This means, each order
needs to be squared off during a single trading day. This gives
you the advantage of benefitting from the market fluctuations
during the day. And in case you don’t close the trade before
3:00 PM, the trade gets automatically squared off or closed.
Since each trade is squared off in a single day, you are
allowed a greater amount of leverage. In investing parlance,
leverage is the amount of money you can borrow in order to
place a trade. In such orders, you pay a fraction of the amount
you are trading. The broker pays the rest of the amount.

8. Bracket Order (BO):Bracket order combines the benefits of multiple
orders placed simultaneously allowing you to fully automate a
particular purchase or sale in a given security.
It essentially consists of 3 Legs or individual orders, which allows
you to place a buy or sell order, its target order as well as its stop
loss order. This results in a fully covered order being placed on the
exchange allowing you to both automatically book profits as well as
automatically cover losses.

9. MARGIN TRADING
Definition: In the stock market, margin trading refers to the process
whereby individual investors buy more stocks than they can afford to.
Margin trading also refers to intraday trading in India and various stock
brokers provide this service. It involves buying and selling of securities in
one single session. Over time, various brokerages have relaxed the approach
on time duration.
The process requires an investor to speculate or guess the stock movement
in a particular session. Margin trading is an easy way of making a fast buck.
With the advent of electronic stock exchanges, the once specialised field is
now accessible to even small traders.

10. FEATURE OF MARGIN TRADING
Here are some of the key features of the margin trading facility to be availed by clients at the broking
house.
All the investors who are looking to avail of the margin trading facility
are required to provide an undertaking by initialing their acceptance of
all the Terms and Conditions applicable to the MTF, over and above
the rules already applicable to the regular trading account. The margin
trading facility is not a separate trading account but it is offered in the
same existing trading account and linked Demat account.
The MTF facility allows investors to create leveraged positions in
securities, as a multiple of what they can afford based on cash on hand.
This is especially relevant in the non-derivative segment
where future leveraging is not possible.
Traders who avail of the MTF facility can provide their margin amount
either in cash or in securities collateral. However, the value of the
equity collateral will only be considered after the normal haircut of
40% to 50% in the case of equities. Alternatively, trades can also offer
the margin through a mix of cash and shares as collateral.

11. BENEFITS FOR INVESTOR
MTF is ideal for investors who are looking for benefit from the price
movement in short-term but not having sufficient cash balance.
Utilization of securities available in portfolio/demat account (using
them as shares as collateral).Improve the percentage return on the
capital deployed.
Enhance the buying power of the investors.
Prudently regulated by the regulator and exchange

12. There is no standard limit on the number of days the position can be
carried forward and that is at the discretion of the broker and also
customized based on the relationship that the broker and the client enjoy.
Normally clients who give higher brokerage and have a long-standing
relationship do get some special privileges. Normally, this extends for 2-3
months in the majority of the cases.
Brokers cannot offer MTF facilities on all the stocks listed on the stock
exchange. The master list is defined by SEBI which is the outer limit for
offering the MTF facility to the clients. However, most brokers also
impose their level of checks and balances and even prune this list further
in the interest of safety and security.
Currently, the SEBI rules only allow corporate brokers registered with
SEBI to offer the margin trading facility. Individual brokers and
brokerages structured as partnerships cannot offer this facility.

13. TYPES OF INVESTORS
Investors are unique players in the growth process of a
business. The level and quality of their involvement can
ultimately help determine a company’s success or
failure. It is imperative for budding entrepreneurs to take
the time to learn about the types of investors
available and how to use best practices when
approaching them for funds.

14. 5 TYPES OF INVESTORS
Banks: Banks are a classic source for business loans, Inc.
explains. Loan-seekers will usually be required to produce proof of
collateral or a revenue stream before their loan application is
approved. Because of this, banks are often a better option for more
established businesses.
Angel investors: Angel investors are individuals with an earned
income that exceeds $200,000 or who have a net worth of more
than $1 million. They are found across all industries and are useful
for entrepreneurs who are beyond the seed stages of financing but
are not yet ready to seek out venture capital.
Peer-to-peer lenders : Peer-to-peer lenders are individuals or
groups that offer funding to small business owners, Time reports.
To work with these investors, entrepreneurs must apply with
companies that specialize in peer-to-peer lending, such as Prosper
or Lending Club. Once their application is approved, lenders can
then determine the businesses they wish to support.

15. Venture capitalists: Venture capitalists are used only after a
business begins to show a significant amount of revenue.
These investors are notable, as they usually invest a
substantial amount of money (often around 10 million). They
gain most of their returns through “carried interest,” or a
percentage received as compensation from the profits of
a hedge fund or private equity.
Personal investors: Business owners often rely on family,
friends or close acquaintances to invest in their companies,
particularly in the beginning. However, there is a limit to how
many of these individuals can invest in startups because of
legal limitations, Legal Zoom explains. While it may be easy
to convince loved ones to help, thorough documentation is
highly recommended.

16. CLEARING AND SETTLEMENT PROCEDURE
In the stock market, there is always a buyer and a seller.
So, when a person buys a certain number of shares, there is
another trader who sells the shares. This trade is settled
only when the buyer receives the shares and the seller
receives the money.
There are three phases in a secondary market transaction:
1. Trading
2. Clearing
3. Settlement

17. TRADING
In the stock market, a large number of trades occur simultaneously.
The stock exchanges use an electronic order matching system to match
‘buy’ and ‘sell’ orders from different traders. This way, each trade is
executed.
For instance, imagine that stock ‘X’ is trading in the stock market.
The buy and sell orders for this stock are as follows:

18. Here the costliest buy prices are matched against the cheapest available
sell prices, and whenever the buy price is less than or equal to the best
available sell price a match is done. This of course also depends on the
respective quantities available in the market across buys and sells and is
known as market depth.
So even if a particular price may result in a match, if there is not enough
quantity available at the seller side at that price, the buy order will still
not be fully traded.
The market depth is created by brokerages who collect orders from
different investors and pass it on to the stock exchanges, most likely to be
the two most popular exchanges in India — the Bombay Stock Exchange
(BSE) and the National Stock Exchange (NSE). In this process,
brokerages act as the intermediary between the investor and the stock
exchange.

19. CLEARING
Once two orders match and a trade is executed, the clearing
process takes place. Clearing is the identification of what
security is owed to the buyer and how much money is owed
to the seller. The entire process is managed by ‘clearing
houses’. These are independent entities.
For example, imagine that there are two traders: Ramesh and
Suresh.
However, in the real market scenario, traders tend to conduct
multiple transactions. As a result, the clearing house identifies
all the transactions and the net amount or net securities owed
to the trader are calculated.

20. SETTLEMENT
The next step is to fulfil the financial obligations
identified in the clearing step. This involves the
transaction settlement for the buyers and sellers.
So once the buyer receives the security and the seller
receives the payment, the transaction is settled.

21. TYPES OF SETTLEMENTS IN THE STOCK MARKET
There are two types of settlements in equity investment
that you will come across and they are as follows –
Spot settlement: This type of settlement is carried out
immediately following the rolling settlement principle of
T+2.
Forward settlement: This settlement is applicable when
you agree to settle the trade later at a future date which
could be T+5 or T+7.