Secondary Market and Trading Mechanisms
This domain tests how orders become trades and trades become settled positions on Indian exchanges. Expect questions on order types, clearing and settlement, margins, and the rules on short selling, SLB and price bands.
Trading
- Market order: immediate execution at the best available price; no price guarantee.
- Limit order: executes at the limit or better; may remain pending.
- Stop-loss order: becomes a market order when the trigger is hit.
- Price bands and dynamic price bands; block and bulk deals.
Clearing and settlement
- The clearing corporation novates trades, becoming counterparty to both sides.
- T+1 settlement: pay-in and pay-out on the next working day; T+0 is optional for a limited set of scrips.
- Margin is collected from clients upfront; client funds are segregated.
- Securities Lending and Borrowing supports delivery for short positions; retail short selling is otherwise intraday.
Worked example
A buy limit order for 200 shares at ₹250 fills 120 shares at ₹248 and 80 at ₹249. Consideration = (120 × 248) + (80 × 249) = 29,760 + 19,920 = ₹49,680. Average price = ₹248.40. If the broker requires 20% margin, the margin is ₹9,936. The order could not have filled above ₹250; a market order could have.
Traps that cost marks
- Treating T+1 as trade date plus one calendar day; it is one working day.
- Assuming a stop-loss guarantees the trigger price; it becomes a market order.
- Calling all short selling illegal: intraday square-off and SLB are permitted, while naked delivery failures attract penalties.
- Confusing an index-wide circuit breaker with a stock's price band.