If someone is long or short using MIS order type and without any tgt or sl order placed what will happen to it if the scrip is very volatile and hits circuit limit upper or lower? Will it be sq. off ? Will it cause heavy penalty because of short delivery, if yes how much?
If memory serves me right … the general rule for other exchanges is that there should be an auction for outstanding intraday positions. But then it is broker specific … I am not sure if Zerodha participates in such auction at the end of the day / on open after circuit limit or they square off the position next day with market open.
Interesting point though … someone from zerodha should comment …
@nithin Can you answer this question?
if not possible to square off end of day it should automatically result in delivery. as the client may not have shares (sold position ) it will be auctioned as in normal and in case of purchase position if full payment not made on pay out date ,broker will meet obligation from his own account and may charge interest to client .
If you are long and hits lower circuit, then it isn’t too big a problem. The position automatically becomes a delivery buy at end of the day. You’d have to bring in the complete amount to fund this trade or it gets squared off the next trading day. If the loss is bigger than the account balance, you’d have to bring in more money to clear the negative balance.
If you are short and hits upper circuit, that is when there could be significant impact. Your sell position will not be covered, and since you don’t own the stock you will default delivering the stock. There will be an auction penalty on this. Check this post
In case of a leveraged order what happens if the amount to be paid for a long position is too large? Like what if I don’t have that kind of money? For example, to trade 1000 AMARAJABAT shares intraday I need margin of ₹31,320 but if I have to take delivery of these 1000 shares then I need ₹8,70,000. I literally don’t have that kind of money. What happens next? Do you’ll send enforcers to collect the money?
If you don’t have the money to take delivery, we’d sell the stock the next day. If there was a loss on the trade of more than Rs 31k (money in your account), then you would have to bring that much extra money into your trading account. Unfortunately we will have to take all recourses available to recover that money as exchanges debits the money from us.
Hey thanks for the answer. In news many times we here people making big and losing big. What if person loses more than he owns does he have to work for you to pay the dues? Just want to know what is the worst recourse brokers have or could take if needed?
hmm… instead of worrying about this, learn how to trade right. Never take a trade where you lose more than 1% of your trading capital. Check this transcript of a conversation I had with Jack Schwager recently.
Wat if we r shrt on a call with SLM, order placed at 9:30 on intraday (MIS) and by 9:50 circuit hit and option trading is freezed, will the order be exited by exchange…as it’s SLM order
No, it won’t be exited at the exchange if it is on price freeze. This position will be converted to NRML and if there is no sufficient margin to hold it, there will be a short margin penalty from the exchange.