Freak trades in F&O after the removal of execution range

@siva THe SLM orders are stored in Zerodha and sent to exchange on the trigger? OR are they stored with an exchange directly when they are placed?

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Let us say, we have SL-L limit order sitting at exchange. Now I want to modify it to market, will Zerodha internal range mechanism apply here or we might get into spike trap since its already with NSE ?

They are stored on exchange only. Exchange has two passive order books, one is for trigger pending( stop loss orders) and other for normal limit orders. Once sl is triggered it is moved to limit order book.

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No range will be applied from our end for stop loss market orders.

what is workaround if we want to make end of day exit with algo as SL-L order will be modified to market at let us say 3.20 and range will not be applied.

Seems like slippage happened on Friday not only for SL-Market orders but also for the SL-Limit orders. Please refer to this screenshot:

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This order is placed as stop loss market only, placed 2 lots, after it triggered at 149, order is sent as market and first lot is traded at 677 and seems there are no more counter orders pending and order turned into limit as when market order is placed when price is at circuits or no counter party it will sit in system as limit and hence it turned as limit, likely got LTP with price of 168 and got traded other lot at168, so one lot is traded at 677 and other at 168 bringing the avg to 422. Hope this helps but yeah this is a very rare case.

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but is there any difference for slm and sl limit for an already open position when freak trade occurs ??

Sl limit will execute only at or better than mentioned limit price but sl market can execute at any price after trigger.

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i thought limit order is applicable to first order you place , eg. buy order within a limit xyz , so you are saying its applicable to stoploss order too , what about sl trigger price ?

For open short option positions, the position would be closed only if span + exposure margin exceeds your available funds.

Can check this, on how stop loss orders work.

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Can freak trade happen in Future stocks also?

I trade in future stocks only (not index). As far as I understand, there is a upper/lower circuit limit, that protects us from freak trade. So, Is it possible to lose more than the circuit limit range in future stocks only like “STAR AUG FUT”, “INDHOTEL AUG FUT”???

Suppose I had a position live and running when 16450 ce momentarily went to 803.05. The RMS did not square of because it was a “freak” trade. But what if it had stayed there for say 5 seconds?

For how long will it have to stay there at that price for zerodha RMS to classify it no longer a freak trade and close my position at a significant loss? Even a hedge at say 16500 ce would not have helped because all other strikes won’t be affected by the freak trades

Can happen but the chances are very less, said that using limit order help in most cases.

Won’t stay for that long, algos and arbitragers will jump in if that’s the case, anyhow even if it stays for 5 secs it won’t be squared off.

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Hi Nithin,

Thanks for such a wonderful detailed clarification, Though this issue does not concern Zerodha but mainly concerns NSE and the folks @ NSE are nowhere to be seen but you have demonstrated true leadership by providing wonderful commentary n timely solution to the traders community, Big salute to you!

As an active trader I have the following serious concern and I am motivated to put this on your table fully confident that you will help resolve this huge conflict.

The issue concerns mainly around a combination of such freak trades (I agree such freak trades are very very rare, but all the same we need to be prepared and can it leave it for chance right?) and peak margin penalty.

I want to submit this issue/problem with a true real life example, so you could appreciate the concern and help us traders with a solution, please refer this example:

As an active trader let’s say, I opened a Iron Fly with BankNifty Options, let’s say BN Spot is 35000.
So I initiated a Short Straddle i.e. I shorted 35000 CE and 35000 PE and to cover the risk I opened a Long Strangle i.e. I went long on 35500 CE and 34500 PE.

To avoid the risk of freak trades due to the removal of TER(trade execution range) I want to play safe so I executed all limit orders instead of market orders, though this takes time and i may end up missing the opportunity to simultaneously execute all four legs of the strategy that’s fine I will still take the risk and go forward by placing limit orders that’s fine.

Now, let’s say now, after few days, I want to exit this strategy with profit, if I go to positions in kite and select all and exit, this becomes market order and I could end up being a victim of freak trades/huge slippages due to volatile price movements, hence to safeguard against this risk, I will exit one by one position with limit orders closely observing the CMP all the time. knowing fully well that short positions require more margin compared to long positions I will exit the long positions (hedge) first and then exit the short positions also one by one all through limit orders.

Now here is the danger, when I exit the long positions, this position is no longer Iron Fly, because of the fact the position is not a naked short straddle the required margin for Iron Fly is typically around 40k / 1 lot of iron fly, and the margin required for short straddle is FOUR TIMES MORE i.e. 160k / 1 lot of short straddle, so SEBI/NSE/Broker has given this margin benefit to the trader since trader has protected his position, but when I genuinely want to exit the position and since I don’t want to fall victim of freak trades by placing market order, I am one by one executing limit orders first exit long positions but the system is recognizing this as if trader has taken a short straddle for which
four times margin is required and you will end up penalizing me as peak margin penalty.

so for us traders it will become like either fire or frying pan, both ways we are in trouble.

if we execute market order we may end up losing 20-40% of capital in one single trade if we execute limit order one by one in a four leg strategy then we are handed out huge huge penalty of peak margin.

could you please help clarify and provide a solution OR ideally impress upon SEBI/NSE not to apply peak margin penalty on retail traders when we are typically opening / exiting multi-leg strategies.

Thanks in anticipation of your favorable response.

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Can this be solved by exiting short leg first and long leg later using limit orders?

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Thanks for your answer, Can you please tell me, why it can technically happen, if there are upper/lower circuit limits?

Why chances in future stocks are less than Nifty options?

Thank you

may be may not, until zerodha replies we don’t know, else we need to try /experiment and check, right?