We will discuss the two main order types that you would place on the brokers terminal – CNC & MIS orders.
These orders are very popular among investors and CNC stands for “Cash and Carry” orders.
These are delivery orders, i.e. when you buy the shares, they will be delivered to your DEMAT account in t+2 days and if you sell, the shares will be debited from your DEMAT account.
So if you want to hold the shares for a few days or weeks or months then you should place CNC orders.
When you place CNC buy orders, you have to put the full capital upfront. The broker doesn’t give any additional leverage.In other words, if you have put in the order of Rs. 1000 you will be able to buy shares for 1000 only and there will not be any multiplier to it.
This is a very important fact you need to keep in mind. Let’s say you bought some shares of Reliance via a CNC order. Once the order is executed, you are entitled to the shares of Reliance at that price because you have paid up front for those shares.
That is not the case with MIS orders, as we will learn shortly. All shares bought during the day have to be sold off by the end of the day or your broker will forcefully do it.
If you want to take a short position on a stock, you can not do it via CNC orders. You will have to use MIS orders for that.However, trades under CNC can be converted to MIS order.
These orders are most popular among intraday traders.
MIS stands for “Margin Intraday Squareoff”.In simple words, your position has to be squared off or converted to the other type of order else your broker will automatically close it by the end of the day.
For example, if you buy 100 shares of TCS in the morning, you have to sell them back before 3:20 PM (the exact time depends on the broker) otherwise the broker will automatically sell those shares.
Since the MIS orders are purely intraday orders, brokers loan you their money (also called leverage) so that you can take bigger trades than your capital.
For example, with just 1 Lakh rupees, you can potentially take trades worth 10 Lakh or even 20 Lakh rupees. The leverage changes from broker to broker but intraday traders actively use this facility to maximize their profits.
If you want to take a short position on a stock, you can do it with MIS orders.
If you don’t close your position by 3:20 PM, your broker will automatically close it. Therefore, it is very important to manage your trade wisely.
Here are the key differences between the two:
- The basic difference between CNC orders and MIS orders is that CNC orders are delivery orders whereas MIS orders are purely intraday orders and just in case trader doesn’t square off MIS order, the same shall be squared off by the Risk Management Systems before the close of the market hours.
- CNC orders have no margin multipliers whereas additional leverage and margins are available for MIS orders.
When you place an order for buy or sell you have to use the order typejudiciously. If you are not a trader then it’s better to buy under cash and carry and take delivery of the order and when your goal of price appreciation is met, sell the security. However, if you understand the market dynamics well then you can trade intraday and take advantage of the market inefficiencies.
