Stock Market Limit Prices: Know More about Intraday Time

The stock market is an ever-dynamic environment. Placing orders at the right time and price is exceedingly crucial in making profits. A lost opportunity can impact your portfolio to a large extent. So, you definitely don’t want your transaction to get cancelled or rejected, correct?

Well, it is beyond your control where the non-execution is because of the unavailability of matching orders. But, here is a significant, controllable factor that can reject your transaction for not being prudent enough. It is the ‘available limit’ for trading in your account.

Today’s article discusses what is limit in the share market, available limits, margin limits and related factors across different products.

What is the concept of available limit to trade?

The available limit to trade, as the name suggests, is the amount of funds available for trading. It includes the funds invested by the trader and the margin funds taken as loans from the broker.

The available limit changes each day as the balance varies with each transaction.

The three limits you must look out for in your demat account are the available limit, the utilised limit and the total limit.

• The available limit shows the amount available for daily trading in the share market for each security, like futures, options, stocks, intraday trades, etc.
• The utilised limit shows the amount traded per day under each category of security.
• Total limit acts like a ledger account showing the combination of available and utilised limits. It shows the original limit, the utilised amount and the remaining limit under each category.

Checking the different limits in your account is essential, as an order gets placed only when it is within the limits.

Margin limits for trading

Margin, in this context, is a loan that brokers provide investors. Margin allows traders to take larger positions than they can afford to. 

Traders can request for a Margin Trading Facility (MTF) with the broker. The broker asks the trader to pledge collateral in the form of cash or securities. So, once the margin trading account is open, traders can deposit a particular amount as collateral, based on which the broker lends loans.

For example, if a trader wants to enter into a transaction for ₹50,000 but doesn’t want to invest the whole amount at once, he can ask the broker for a margin facility. Let’s assume that the broker demands 10% as the collateral, which is ₹5,000. The broker will lend the balance of ₹45,000.

The amount so lent forms one part of the available limit for trading.

Intraday limits

Apart from the amount that the trader deposits and gets as a margin from the broker, the available limit also includes the sale proceeds of securities.

In January 2020, the Securities and Exchange Board of India (SEBI) passed a new rule about the sale of proceeds in intraday trades. According to this 80% of the sale proceeds in intraday trades will get credited and become a part of the available limit. The remaining 20% gets credited one day later.

If the first transaction of the intraday trade is a sell trade, traders must place a buy order to square off the position. If the price of the share while buying it back has increased beyond 80% of the sale proceeds, traders must bring in additional margins to complete the transaction.

Quantity freeze limits for indices

Quantity freeze limit is the stock exchange’s way of controlling the demand for securities. It is where the exchange sets a cap on the number of units a trader can place per order. A unique higher limit is set for each security in the market. 

Such upper limits for trading in indices refer to quantity freeze limits for indices. It freezes the order upon reaching the maximum limit.

So, investors who place large orders must be well aware of the limits for each security and divide their transactions into multiple orders to stay within the quantity freeze number.

Quantity freeze limits trades by monitoring the volatility of stocks and ensuring it does not go beyond controllable boundaries. It also tries to reduce market manipulation activities by large investors.

What is Limit Price in Trading?

In the stock market, a limit price refers to the specific price at which an investor is willing to buy or sell a stock. It is an order placed by traders to ensure that they do not buy or sell a stock for a price higher (in case of buying) or lower (in case of selling) than a predetermined limit. When placing a limit order, the investor sets the maximum price they are willing to pay when buying a stock, or the minimum price they are willing to accept when selling a stock.

For example, if you place a buy limit order for a stock at ₹500, your order will only be executed if the stock’s price reaches ₹500 or lower. Similarly, if you place a sell limit order at ₹550, the order will only execute if the stock’s price reaches ₹550 or higher. This helps investors manage their buying and selling prices, ensuring they do not face unexpected price movements.

Limit orders are especially useful for protecting against market volatility, as they give traders more control over the price at which they trade. However, there is no guarantee that a limit order will be executed if the stock does not reach the specified price.

Bottomline

Every brokerage application provides a section representing the available limit in the trader’s account. The application format and the numbers’ presentation may vary, but the concept remains the same for all brokers. Hence, irrespective of the brokerage firm your demat account is with, you must check the available limit before placing each order to ensure your order does not get rejected.

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