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Post Date : April 29, 2025
Intraday orders such as MIS (Margin Intraday Square-off) and CO (Cover Order) allow traders to take leveraged positions, enabling them to trade with up to 5 times the capital available in their account. These trades are intended to be squared off within the same trading session.
However, in certain situations, such as when a stock hits its circuit limit (upper or lower), square-off may not be possible. This can lead to significant implications for the trader.
Understanding Circuit Limits
Circuit limits, also known as price bands, are the maximum permissible movement (upward or downward) in the price of a stock during a trading day. These limits are imposed by the exchanges to control volatility and prevent extreme price fluctuations.
When a stock hits the upper circuit, it means there are only buyers and no sellers in the market. Conversely, when a stock hits the lower circuit, there are only sellers and no buyers.
Impact on Sell Positions When Stock Hits Upper Circuit
Scenario: A trader has taken a short position using MIS/CO and the stock hits the upper circuit limit.
Explanation:
Since there are no sellers in the market, the trader will not be able to buy back the stock to close the short position. As a result, the intraday position is converted into a delivery sell trade.
Consequences of Short Delivery:
Impact on Buy Positions When Stock Hits Lower Circuit
Scenario: A trader has taken a long position using MIS/CO and the stock hits the lower circuit limit.
Explanation:
Due to the absence of buyers, the trader cannot sell the stock to square off the position. In this case, the position is treated as a delivery buy.
If no action is taken:
RMoney may sell other holdings to recover the required funds or take appropriate action to limit risk exposure.
Key Takeaways
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