Introduction

MIS – The Indian stock market is currently soaring up with numerous activities going through traders and investors. Be it beginners or experienced individuals, everyone is forming new strategies and plans to maximize their gains or we can say “Profits.” In this vast array of activities, it is necessary to have a common knowledge on what are types of orders placed in the stock market. 

There are three common types of orders placed in the stock market: MIS, CNC, and NRML. So, what are MIS, CNC, and NRML and how MIS is different from the other two? 

Let’s understand this in this article so that it will be easier for you to plan your financial goals. 

What is MIS?

Margin Intraday Square-Off or MIS in Stock Market is a special order type that allows traders to buy and sell stocks for intraday trading. Unlike regular trading, which can take days or weeks, intraday trading involves buying and selling within the same day. This means you can capitalize on small price movements. The beauty of MIS is that it allows you to trade using borrowed funds, letting you utilize your investment and increase your potential profits.

When you place a trade under MIS, you only need to put up a fraction of the total trade value as a margin. For instance, if you want to buy stocks worth ₹10,000, you might only need to provide ₹2,000 as a margin. This margin facility allows traders to take larger positions than they could with their own capital alone. However, keep in mind that all MIS positions must be squared off by the end of the trading day.

How Does Margin Intraday Square-Off Work?

Let’s dive into how Margin Intraday Square-Off works, focusing on the mechanism:

1. Margin and Leverage in Intraday Trading

Margin is the amount of money you need to maintain in your trading account to open a leveraged position.

Leverage allows you to trade with more money than you actually have in your account. For example, with a margin of ₹10,000 and leverage of 10x, you can trade with ₹1,00,000.

2. The Process of Taking a Position

When you initiate an intraday trade using margin, you’re essentially borrowing money from your broker to take a larger position. 

Example: Suppose you decide to buy 1,000 shares of a stock priced at ₹100 each. The total cost is ₹1,00,000. If your broker offers 10x leverage, you only need ₹10,000 in your account.

3. Monitoring the Position

Throughout the trading day, the value of the stock fluctuates, and so does the value of your position. 

If the stock price increases, your position is in profit; if it decreases, you incur a loss.

Brokers often require you to maintain a certain margin level. If your position moves unfavorably, and your margin level drops below a threshold, you may receive a margin call to deposit more funds.

4. Square-Off Mechanism

Manual Square-Off: 

You can manually close your position by executing the opposite trade. For example, if you bought shares, you would sell them before the market closes.

Auto Square-Off:

• Brokers have a predefined time, usually around 3:15 PM (IST), by which you must close your intraday positions.
• If you haven’t closed the position by then, the broker’s system automatically initiates a square-off order.
• The system will execute this MIS order at the current market price to close your position.

5. How does the Auto Square-Off Work?

What happens if you forget to square off your position? That’s where automatic square-off comes into play. Most online trading platforms have a built-in feature that automatically closes your open positions shortly before the market closes. It ensures you don’t face any unexpected losses by holding positions overnight.

• Trigger Time: At the broker’s specified cutoff time, the system scans all open intraday positions.
• Order Placement: The system places market orders to close these positions. A market order is executed at the best available price.
• Execution: The system prioritizes executing these orders as quickly as possible to ensure all positions are closed before the market closes at 3:30 PM (IST).
• Confirmation: Once the square-off is executed, you receive a confirmation of the trade, indicating that your position has been closed.

6. Post Square-Off

• Settlement: The profit or loss from the squared-off position is settled in your trading account.
• Charges: The broker may charge a fee for the automatic square-off service. This is often higher than the regular intraday trading fee.

Example of Square-Off:

• Suppose you bought 1,000 shares of a stock at ₹100 each using a margin with 10x leverage.
• By 3:15 PM, the stock price is ₹98, and you haven’t closed the position.
• The broker’s system automatically sells the 1,000 shares at ₹98, resulting in a total sale value of ₹98,000.
• The initial margin was ₹10,000, but due to the price drop, you incur a loss of ₹2,000 (₹2 per share).
• This loss is deducted from your trading account, and any remaining margin is returned to you.

Key Points to Consider:

• Liquidity: During the square-off process, market conditions might cause the price to fluctuate rapidly, impacting the final executed price.
• Risk Management: Automatic square-off protects against the risks of holding a leveraged position overnight.

How to Trade Stocks Using MIS in Share Market?

Trading stocks online using Margin Intraday Square-Off involves a process that allows you to leverage your capital to trade larger positions to close those positions within the same trading day. Here’s a step-by-step guide on how to do it:

1. Understand the Basics of MIS

• Intraday Trading: This is a type of trading where you buy and sell stocks within the same trading day. Your positions must be closed before the market closes.
• Margin Trading: Margin trading allows you to borrow money from your broker to trade larger amounts than what you have in your account. The margin is the amount of money you need to deposit to cover part of the trade’s value.
• Square-Off: This is the process of closing your open positions before the market closes. If you don’t manually close your positions, your broker will automatically square them off.

2. Choose a Reliable Broker

• Select an online brokerage that offers margin trading and intraday square-off features.
• Ensure the broker provides a user-friendly trading platform with real-time data, technical analysis tools, and quick order execution.

3. Set Up Your Trading Account

• Open a Margin Account: When you open your trading account, ensure it supports margin trading. This account will allow you to borrow funds to increase your buying power.
• Deposit Funds: Deposit the required margin amount into your trading account. This could be a percentage of the total trade value you plan to execute.

4. Choose Stocks for MIS in Intraday Trading

• Liquidity: Choose highly liquid stocks, meaning they have high trading volumes. This ensures that you can easily enter and exit positions.
• Volatility: Look for volatile stocks, as they are more likely to offer significant price movements within a day, providing profit opportunities.

5. Analyze the Market

• Technical Analysis: Use charts and technical indicators to identify trends, support and resistance levels, and potential entry and exit points.
• News and Events: Keep an eye on news, earnings reports, and economic data that could impact the stock’s price.

6. Place an Order

• Log in to Your Trading Platform: Access your broker’s online trading platform.
• Select the Stock: Choose the stock you want to trade.

Enter the Order Details:

• Order Type: Choose between a market order (executed at the current price) or a limit order (executed at a specified price).
• Leverage: Select the amount of leverage you wish to use, depending on the margin available.
• Quantity: Enter the number of shares you wish to buy or sell.

7. Monitor Your Position

• Real-Time Tracking: After placing your order, monitor the stock’s price movement and the overall market. 
• Risk Management: Set stop-loss orders to minimize potential losses. A stop-loss order automatically sells your shares if the price drops to a certain level.

8. Square-Off Process

Manual Square-Off:

• If the stock price reaches your target profit or the market moves against you, manually close your position by placing an opposite order (sell if you bought, buy if you sold).

Auto Square-Off:

• If you don’t square off manually, the broker’s system will automatically square off your position at a predefined time before the market closes (typically around 3:15 PM IST).
• The automatic square-off ensures that you don’t carry the position overnight, which could expose you to risks from after-hours market movements.

9. Final Settlement

• Profit or Loss Calculation: Once your position is squared off, your profit or loss is calculated based on the difference between your buying and selling prices, minus any fees or charges.
• Settlement: The profit (or loss) is credited (or debited) to your trading account, and any borrowed margin is returned to the broker.

10. Review and Learn

• Analyze the Trade: Review your trades to understand what worked and what didn’t. This helps in refining your strategy for future trades.
• Continuous Learning: Intraday trading requires constant learning and adapting to market conditions.

Example Scenario:

• Account Balance: You have ₹10,000 in your margin trading account.
• Leverage: Your broker offers 10x leverage.
• Stock Selection: You decide to trade a stock priced at ₹100.
• Trade Execution: You buy 1,000 shares, which would normally require ₹1,00,000, but with leverage, you only need ₹10,000.
• Price Movement: During the day, the stock price increases to ₹105.

Square-Off:

• Manual: You sell the 1,000 shares at ₹105, making a profit of ₹5,000 (₹5 x 1,000 shares).
• Auto: If you didn’t square off, your broker would do it automatically at the market price before the market closes. 

Benefits of Margin Intraday Square-Off (MIS)

1. Increased Buying Power:

Margin Intraday Square-Off allows traders to leverage their capital, meaning they can take larger positions than their available funds. This increased buying power can potentially lead to higher returns on successful trades.

2. Potential for Higher Profits:

By using leverage, traders can amplify their profits if the stock price moves in their favor. For example, a small price increase can yield a significant return due to the larger position size.

3. Flexibility in Trading:

Margin trading offers flexibility, allowing traders to enter and exit positions quickly throughout the day. This is especially beneficial for capturing short-term price movements in volatile markets.

4. No Overnight Risk:

Since positions are squared off before the market closes, there is no risk of holding positions overnight. This avoids exposure to after-hours market movements or global events that could negatively impact the position.

5. Efficient Use of Capital:

Traders can use a portion of their capital as margin and allocate the rest to other trades or investments. This allows for better diversification and maximization of capital efficiency.

Risks Associated with Margin Intraday Square-Off (MIS)

1. Amplified Losses:

Just as profits are amplified with leverage, so are losses. If the trade moves against the trader, the losses can exceed the initial margin, leading to significant financial risk.

2. Margin Calls and Liquidation:

If the market moves unfavorably and the margin level drops below the required threshold, the broker may issue a margin call, requiring the trader to deposit more funds. If the trader fails to meet the margin call, the broker may liquidate the position, often at a loss.

3. Market Volatility:

Intraday trading using margin is highly sensitive to market volatility. Sudden price swings can result in rapid losses, especially if stop-loss orders are not in place or if they are triggered at unfavorable prices due to slippage.

4. High Broker Charges:

The costs associated with margin trading, such as interest on borrowed funds and auto square-off fees, can eat into profits. Frequent trading may also lead to higher transaction costs, reducing overall returns.

5. Psychological Pressure:

The need to constantly monitor positions and the potential for significant losses can lead to stress and emotional decision-making. This psychological pressure may cause traders to make hasty or irrational trades, leading to further losses.

Wrapping Up! 

Margin Intraday Square-Off or MIS is a vital part of trading activities where a number of traders invest money. MIS offers flexibility and high profits if traded after research and analysis. If you are looking forward to enter in intraday trading, MIS can be a good option. Analyze the market well, look out for the risk factors in case of uncertainties and get your MIS trade on the way. 

So, what are your trading strategies then? How will you execute your MIS orders? 

Open a Demat Account with Jainam for a seamless trading experience!