ONLINE TRADING

 Most of the trading that happens in INDIA is through BSE and NSE.
 Trading in INDIA was in open outcry fashion till 1990’s.
 This process was really time consuming and imposed limits on volume of orders and
transparency.
 NSE was the first to recognize this problem and to improve these conditions it introduced
the nation wide online fully automated “SCREEN BASED TRADING SYSTEM”.
 In 1994, NSE started National Exchange for Automated Trading [NEAT] while BSE
started it in 1995 with the name of Bombay On-line Trading [BOLT].
SCREEN BASED TRADING SYSTEM

 NEAT and BOLT are state-of-the-art client-server based applications where at the server
end all trading information is stored in in-memory databases to achieve minimum
response time and maximum system availability for users.
 A member, broker enter orders from the Trader Work Stations (TWSs) installed in their
offices.
 There are many brokers who provide internet based trading facility to their clients.
 Investors can buy/sell securities through Trader Terminals downloaded on their
computers, Trading Apps on their mobiles etc.
 Both NSE and BSE systems run on ‘Order driven’ systems.
WHAT IS ORDER DRIVEN SYSTEM ?

 An order-driven market is one in which all of the orders of both buyers and sellers are
displayed, detailing the price at which they are willing to buy or sell a security, and the
amount of the security that they are willing to buy or sell at that price.
 In the table below, all of the buy and sell orders are displayed for hypothetical ABC stock
showing the price and share amount of the order. So, according to what we see in the
table, someone could come into the market and buy 59,100 shares for 42.65 per share.
ORDER DRIVEN contd.

 The order-driven system ensures faster processing, matching and execution of orders in a
transparent manner.
 NSE system, is order driven from the beginning while BSE system turned completely
order-driven after 13thAugust 2001. Till then it was both order and quote driven.
 Regular Trading in equities on the NEAT and BOLT systems are conducted from Monday
to Friday between 9:15 a.m. to 3:30 p.m. Thus uniform trading hours are followed by
both the stock exchanges.
 NEAT SYSTEM

 NEAT stands for National Exchange Automated Trading which is trading mechanism used
by NSE in its Screen Based Trading System.
 NSE consciously opted for order driven market which has helped to reduce the job
spreads , thus reducing the transaction costs not only in NSE but in other indexes as well.
 The trading system operates on a strict price time priority. All orders received on the
system are sorted, with the best priced order getting the first priority for matching i.e., the
best buy orders match with the best sell order. Similar priced orders are sorted on time
priority basis, i.e. the one that came in earlier gets priority over the later order.
 The NSE trading system (NEAT) generates and maintains an audit trail of the orders
entered in the system by assigning a unique order number to all the orders placed on the
NEAT system.

Source : nseindia.com
TYPES OF MARKET

Normal Market

Odd Lot Market

RetDebt Market

Auction Market
NORMAL MARKET

 All orders which are of regular lot size or multiples thereof are traded in the Normal
Market.
 For shares that are traded in the compulsory de materialized mode the market lot of these
shares is 1.
 Normal market consists of various book types wherein orders are segregated as Regular
lot orders, Special Term orders, Negotiated Trade Orders and Stop Loss orders depending
on their order attributes.
 NSE F&O LOT SIZE

UNDERLYING SYMBOL JUL-19 AUG-19 SEP-19

NIFTY BANK BANKNIFTY 20 20 20
NIFTY IT NIFTYIT 50 50 50
NIFTY 50 NIFTY 75 75 75
ADANI PORT & ADANIPORTS 2500 2500 2500
SEZ LTD
ACC LIMITED ACC 400 400 400
ADANI ADANIENT 4000 4000 4000
ENTERPRISES
LIMITED

SOURCE : nseindia.com
ODD LOT MARKET

 All orders whose order size is less than the regular lot size are traded in the odd-lot
market. An order is called an odd lot order if the order size is less than regular lot size.
 These orders do not have any special terms attributes attached to them. In an odd-lot
market, both the price and quantity of both the orders (buy and sell) should exactly match
for the trade to take place.

NOTE : Currently the odd lot market facility is used for the Limited Physical Market as per
the SEBI directives.
AUCTION MARKET

 In the Auction Market, auctions are initiated by the Exchange on behalf of trading
members for settlement related reasons.
 There are 3 participants in this market.
• Initiator - the party who initiates the auction process is called an initiator.
• Competitor - the party who enters on the same side as of the initiator.
• Solicitor - the party who enters on the opposite side as of the initiator.
ORDER MATCHING RULES

 The best buy order is matched with the best sell order.
 For order matching, the best buy order is the one with the highest price and the best sell
order is the one with the lowest price. This is because the system views all buy orders
available from the point of view of a seller and all sell orders from the point of view of the
buyers in the market.
 Hence, the best buy order is the order with the highest price and the best sell order is the
order with the lowest price.
 Orders lying unmatched in the system are 'passive' orders and orders that come in to
match the existing orders are called 'active' orders.
 Orders are always matched at the passive order price. This ensures that the earlier orders
get priority over the orders that come in later.
ORDER CONDITIONS

NEAT also allows members to specify conditional clauses on the submitted orders These
clauses can be of the following kinds:

1. Time related condition

2. Price related condition
3. Quantity related condition
TIME CONDITIONS

Time related conditions include:

 Day order – the order is valid only for the day on which it is entered. If the order is not matched
during the day, it will get cancelled at the end of the trading day.
 Good Till Cancelled (GTC) order -the order remains in the system until it is cancelled by the
member. It will therefore span multiple trading days if it does not get matched. The maximum
number of days a GTC order can remain in the system is notified by NSE from time to time.
 Good Till Date (GTD) order – the order stays in the system till the date mentioned by the member.
The maximum number of days a GTD order can remain in the system is notified by NSE from time
to time.
 Immediate or Cancel (IOC) order – if the order is not executed on release, it will be removed from
the market. If a partial match happens, the unmatched portion of the order is cancelled immediately.

Note: Currently, GTC and GTD orders are not available on the system as per SEBI directives.
PRICE CONDITIONS

 Limit Price/Order – An order that allows the price to be specified while entering the order into
the system.
 Market Price/Order – An order to buy or sell securities at the best price obtainable at the time of
entering the order.
 Stop Loss (SL) Price/Order – The one that allows the Trading Member to place an order which
gets activated only when the market price of the relevant security reaches or crosses a threshold
price. Until then the order does not enter the market.
There are 2 types of Stop-Loss orders:
1. SL order (Stop-Loss Limit) = Price + Trigger Price
2. SL-M order (Stop-Loss Market) = Only Trigger Price
EXAMPLE OF STOP LOSS ORDER

If you have a buy position at 100 and you wish to place an SL at 95.

a) SL-M order type - you will place a Sell SL-M order with trigger price = 95. Here, when the price of 95 is
triggered, a sell market order will be sent to the exchange and your position will be squared off at market
price.
b) SL order type - you will place a Sell SL order with price and trigger price. Since your order needs to be
triggered first, the (trigger price ≥ price.) Here, this order type gives you a range of the Stop-Loss.

Let's assume a range of Rs 0.10 (10 paise). Here, you can keep trigger price = 95 and price = 94.90. When
the price of 95 is triggered, the sell limit order is sent to the exchange and your order will be squared off at
the next available bid above 94.90. So, your SL order may get executed at 96 or 94.95 but not below 94.90.
QUANTITY CONDITIONS

 Disclosed Quantity (DQ)- An order with a DQ condition allows the Trading Member to disclose
only a part of the order quantity to the market. For example, an order of 1000 with a disclosed
quantity condition of 200 will mean that 200 is displayed to the market at a time. After this is
traded, another 200 is automatically released and so on till the full order is executed.
 MF - Minimum Fill (MF) orders allow the Trading Member to specify the minimum quantity
by which an order should be filled. For example, an order of 1000 units with minimum fill 200
will require that each trade be for at least 200 units.
 AON - All or None orders allow a Trading Member to impose the condition that only the full
order should be matched against. This may be by way of multiple trades. If the full order is not
matched it will stay in the books till matched or cancelled.

Note: Currently, AON and MF orders are not available on the system as per SEBI directives.
ORDER BOOK

 The NSE trading system provides complete flexibility to members in the kinds of orders
that can be placed by them. Orders are first numbered and time-stamped on receipt and
then immediately processed for potential match. Every order has a distinctive order
number and a unique time stamp on it. If a match is not found, then the orders are stored
in different 'books'. Orders are stored in price-time priority in various books in the
following sequence:
-Best price
-Within Price, by time priority
The Equities segment has different types of books that are explained in next slides.
TYPES OF ORDER BOOK

Regular Lot Book Special Terms Book

The Regular Lot Book contains all regular lot orders The Special Terms book contains all orders that
that have none of the following attributes attached have either of the following terms attached:
to them.

- All or None (AON)

- All or None (AON) - Minimum Fill (MF)
- Minimum Fill (MF)
- Stop Loss (SL)

Note: Currently, special term orders i.e. AON and MF are not available on the system as per the SEBI
directives.
TYPES OF ORDER BOOK
Stop-Loss Book
Stop Loss orders are stored in this book till the
trigger price specified in the order is reached or
surpassed. When the trigger price is reached or
surpassed, the order is released in the Regular lot
book.
Odd Lot Book
The Odd lot book contains all odd lot orders (orders
with quantity less than marketable lot) in the
system. The system attempts to match an active odd
lot order against passive orders in the book.
Currently, pursuant to a SEBI directive, the Odd Lot
Market is being used for orders that have quantity
less than or equal to 500 viz. the Limited Physical
Market.