If I sell many lots of a derivative, say bank Nifty on say Thursday morning, if I don’t buy it and wait for auto square off, who is actually going to buy it during auto square off?? What if the price goes to zero , who will buy it at zero ?
Auto-Square off means our risk management team closing the positions before the market closes. What you’re asking is about the expiry settlement. If you’re short on derivatives, there is someone long on it. If you leave it to expire, exchange settles it to both the parties either via physical delivery of stocks or cash if it is Index derivatives. You can learn more about Derivates from Varsity.
Auto-Square off at what price? What if when RMS team is placing a order No seller/buyer (put/call) is available.
RMS team square off at market price ? or best bid price?
Best available price (market price) while closing the positions.
Then obviously the position can’t be closed and it will go for expiry settlement.
On auto square off the prices go below or above equilibrium prices…lets say SBI is at 170 and on auto sqaure off it falls to 169…ZERODHA HAS THEIR OWN PROP TRADING DESKS TO BUy AT LOWER THEN EQUILIBRIUM OR SELL HIGHER THEN EQILIBRIUM…Further they also sell data about such sqaure off in different stocks to other parties who then can do the same thing…Part of the game…
In India every order has to be executed at the exchange, even the auto-square off order by the Risk Management Team. Also, Starting September 2019, we have stopped prop trading on Zerodha.