InvestorQ : What are some important things I need to remember while placing the order and after placing the order on the trading terminal?
Arya Nanda made post

What are some important things I need to remember while placing the order and after placing the order on the trading terminal?

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Deepa Salunkhe answered.
1 year ago

Trading concepts need to be understood practically from the following 4 standpoints.

· Placing and managing an order

· Targeting profits and losses

· Protecting your downside risk

· Post-trading things to remember

How to place and monitor your order?

Once an order is placed it shows up in your Order Book under your client code and once the order is executed it shows up in the trade book. The trade book also shows your total pay-in liability after considering your net buy and sell orders. Normally, when you sell rolling settlement shares, you get the credit immediately to adjust against your purchases. However, if the share sold is in T2T, then that credit will not be available before the next day.

Once the order is placed, you need to monitor for stop loss. Remember, even if you place a stop loss, the actual execution could be much below the SL price if liquidity is very thin. That is something you need to be wary of. When you want to change an order, do it through the Modify Order facility. Do not place a fresh order as it may result in dual order and dual liability for you.

How to target profits and losses?

You can also set profit target for your position in the system itself. The order will automatically get executed when the particular price point is reached. This way you will not have to remember to put an order once the price point is reached. Secondly, you can also keep a rolling stop profit when the stock you are holding has appreciated. If you bought SAIL at Rs.40 and it has gone up to Rs.60, what do you do? One thing is to book profits. Another way is to set a stop profit. For example you set the stop profit at Rs.56. Next day if the price moves up to Rs.70, you can set the stop profit at Rs.66 and so on.

How to protect your downside risk?

Better known as risk management, this is a very important aspect of trading in capital markets. There are a variety of ways. Firstly, you can set a stop loss. If you bought ICICI Bank at Rs.215, but technically believe that the stock will become weak below 211, then you can set a stop loss at Rs.210. That way your loss can be restricted to Rs.5, if the price movement goes against you. Second method is to sell futures. Let us say, you bought L&T at 1250. Now the stock has moved up to Rs.1350. You can lock in the profits of Rs.100 by selling L&T futures at Rs.1350. You can either close the futures or roll it over to the next contract. Thirdly, there is the put option protection that you can execute. If you hold Reliance at Rs.980, you can also buy an Rs.980 put option at Rs.5. This way your maximum loss on Reliance will be Rs.5 and you will be profitable above the level of Rs.985. The Rs.5 is the option premium and is your sunk cost.

Post trading things to remember...

Your job as a trader does not end with placing and monitoring the order. There are a lot of other things to monitor. Ensure that you get your contract notes from your broker on time. Also ask your broker to generate your capital gains / loss statement, which you can also download from the internet website. Secondly, you need to ensure that you have funded the transaction by end of day. Also ensure that when you sell shares you have enough shares in your demat account and the Debit Instruction Slip (DIS) is given to your broker on time. Any laxity in this regard can lead to your stock going into auction resulting in losses for you. Thirdly, cross check your contract notes with your order books and your demat accounts on a weekly basis and bring any discrepancy to the notice of your broker. Last but not the least, there is a very important capital gains/losses angle to your trading activity. Any capital gains or losses need to be disclosed in your yearly tax filing. Only if you disclose your capital losses in your tax return can you claim set off in future years. Also separate your short term and long term gains as they have different tax treatment.

These may appear to be minor points, but they will go a long way in making life easier for you.