I have a few newbie doubts related to risk management for MIS positions and I’ll illustrate with an example:
Lets say I have Rs 1000 balance in my trading account, and I wish to buy some stock via MIS and say the stock value is Rs 10 and the margin allowed is 10x, effectively allowing me to buy Rs 10000 worth of stock with my full trading balance of Rs 1000.
Lets also suppose there is no stop loss engaged.
Suppose by the end of the trading day, the stock value falls to Rs 7 implying a loss of Rs 3000.
Q1 : When this is automatically squared off, will I incur a loss or Rs 3000 or Rs 1000 (which was the margin amount applied to the MIS trade) or something else?
Second question is related to the implications of the following statement in the Zerodha policy:
“All positions will be subject to square off if your losses exceed 50% of the available funds in your account. This will be done at the discretion of our RMS team and there will be no margin call.”
Q2: What does available funds refer to in the context of my example: is it the Rs 1000 trading balance ?
If yes, does this mean Zerodha will automatically square off when the stock price hits Rs 9.50, corresponding to a loss of Rs 500 which is 50% of my trading balance.
Or, the statement does not apply in my example since the Rs 1000 trading balance was already allocated for the MIS trade and hence my trading balance or available funds = 0 ?
Thanks Nikhil, but perhaps you could elaborate a bit in the context of my example.
Specifically, how this policy applies to my first question ? ie. would it automatically square off when the stock hits Rs 9.50 limiting my loss to 500.
And also, would the ‘available funds’ imply the Rs 1000 allocated to the MIS trade or is the available funds = 0 since they were already allocated, in which case how does the policy apply ?
Yday, I had taken a trade in PC Jewellers and my account had 44k. The loss went beyond 1L. My impression was it would auto square off beyond certain limit however it didn’t. My query is, if you are saying it will auto square off beyond 50%, why didn’t it happen at this time ?
Also, if this is the case, why did it square off when the prices were going high and i was able to recover my losses ? But, as soon as the prices were going high, it auto squared off and i incurred huge losses…
As I can see the data, PC jewellers scrip was extremely volatile and whenever the stop loss hits or the broker square off the position, it is placed as a market order. Thus making it possible to get executed at any price. However, if you feel there was enough stability in price, you should contact Zerodha for clarification.
I was ok with 120% as well however it was 300% of my funds available which was unbelievable…also, though I did not put any stop loss initially however I tried multiple times to square off however system didn’t allow me…not sure how d system works sometimes
Agree that it will get squared off at market order however when ? Unbelievable if it’s at 300% . That too when d price was going down it didn’t square off but as soon as d prices reversed it got auto squared off without me executing it…very disappointing it is
No, to cover the losses, i transferred money and incurred further losses…i called up Zerodha to understand this and they said the R&M team will give me a call on Monday. Need to understand why this happened…
Bro I heard similar cases with other zerodha users
Does it happens only for cover order( I know in this case he did not use SL)
I heard lot of people talking similar things when using cover order
Agree that without SL, things can go awry however, cant believe that its not squared off when it exceeds 300% of your available funds. Have you heard something like this ? I am waiting for someone from RMS Zerodha team to respond on this.