So guys from last 4 days you came to know how exactly Technical Analysis is done. Now I want you guys, to have look at some of the very frequently faced/asked practical questions.
What is Cash Order?
If you desire to take or give delivery of shares purchased or sold then such transactions are termed as Cash Order or Delivery Order. That means in your Demat Account you have sufficient cash for your transaction.
An order placed at the current price is called a Market Order. There is a very high chance of market orders being executed instantaneously as soon as they are submitted in the exchange.
An order placed to buy or sell at a specific price is called a Limit order.
What is a stop loss order? (Example is important)
A Stop Loss order is generally placed to cut losses on long/short positions. For example you have bought some shares with the expectations of making profit in near future. But if in case the prices move against your expectations then you may place a Stop Loss order to cut your losses from the falling market and vice versa.
For example, let's assume I just purchased BHEL at Rs.1600 per share. Immediately after buying the stock, I enter a stop-loss order with a trigger price of Rs 1575 and limit price of Rs 1550. This means that if the stock falls below Rs 1575 my shares will be sold at the prevailing market price.
Stop loss Buy Order
Assume I short sells BHEL shares at Rs.1600, hoping that the price will go down later in the day. However, in the event the price rises, then I can limit my losses by placing a stop loss order.
I can enter the trigger price as Rs.1625 and the limit price as Rs.1650 in the order panel. Once the last traded price of BHEL touches or moves above Rs.1625, the order gets converted to a limit buy order at Rs.1650.
Stop loss Sell Order
Now assume I buys BHEL shares at Rs.1600, hoping that the price will rise later in the day. However, in the event the price falls, so I will limit my losses by placing a stop-loss order.
I will enter the trigger price as Rs 1575 and the limit price as Rs 1550 in the order panel. Once the last traded price of BHEL touches or moves below Rs 1575, the order gets converted to a limit sell order at Rs 1550.
It is the price at which a stop loss order is triggered.
What is a Disclosed Quantity Order?
It is an order in which only a part of the order quantity is disclosed to the market. The next part is automatically released after the previous order quantity is fulfilled and so on till the full order is executed. The disclosed quantity should be greater than 10% of the order quantity.
For example, if you wish to buy 200 shares of ACC you can enter the disclosed quantity as 20. The order quantity sent to the exchange will to be buy 20 shares. After this request is filled the next 20 shares buy request is sent and so on till the entire order quantity is executed.
What is an Immediate or Cancel (IOC) order?
This order allows you to buy and sell a security as soon as the order is released into the market, failing which the order will be cancelled from the market. In case of part execution, the remaining quantity will be cancelled.
What is meant by 'squaring off a position'?
Squaring off a position means closing out a margin position i.e. buying or selling shares without the intention of taking delivery.
For example, if I buy 100 RIIL Shares under a margin order, squaring off this position would mean selling 100 RIIL shares in the same settlement and vice versa for margin sell (short sell) order.
What is meant by ‘In the Money’?
A contract is ‘In the money’ when the contract is in favor of the buyer, i.e. a profit could be made by exercising his rights. In fact, it depends on the difference between the strike price and the exercise value and hence will differ in the case of Call option and Put option.
A Call Option is ‘In the Money’ when the settlement value of the asset is higher than the strike price. A Put Option will be ‘In the Money’ when the settlement value is lower than the strike price.
What is meant by ‘At the Money’?
An option contract is said to be ‘At the money’ when there is no cash flow from exercising the contract. Such a situation arises when the strike price is equal to the exercise price and the case is the same in both Call Options and Put Options.
What is meant by ‘Out of the Money’?
An option contract is ‘Out of the Money’ when the contract is not in favour of the buyer i.e. a loss generated by exercising the right.
A Call option is ‘Out of the Money’ at times when the strike price is higher than the spot value of the asset.
A Put Option is ‘Out of the Money’ when the strike price is lower than the spot value or settlement price of the asset.
What happens if I could not make the payment of money or deliver shares on the pay-in day?
In case payments are not made for the purchases before pay-in day or if equivalent credit is not there in the trading account then the broker may close-out the transaction by selling shares.
In case shares sold are not delivered to the broker before the pay-in date then such shares are auctioned by the Exchange.
What is an Auction?
If shares sold by the customers are not delivered to the broker sufficiently before the pay-in date then the broker in turn will not be able to settle such obligation resulting in short delivery of shares. As a result of the short delivery, the Exchange will not be able to give delivery of such shares to the brokers whose customers had purchased the said shares. Since the Exchange guarantees settlement of the transactions, it conducts an Auction for the shortages for the given settlement number.
Exchange buys shares on behalf of the brokers (who had purchased the shares & received shortage). The average purchase price of the auctioned shares is collected from the broker who delivered short which in turn is collected from the end customer.
Source… Geojit.com
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