If you are a beginner stock market trader, you might wonder what is square off. In the stock market, you can make either short-term or long-term gains by executing a trade of marketable securities. One of the short-term methods for making a profit in the stock market is intraday trading, and squaring off is part traders consider using to earn short-term gains. This may sound a little confusing, so read this article and get a detailed overview of square off.
What Does Square Off Mean?
Squaring off is simply an intraday trading technique used by traders who trade in the stock market, where they buy the stocks or commodities and sell them before the closing of intraday trade in the hope that prices of purchased stock will increase and they will make a profit. All in all, the trader may acquire or sell the decided quantity of stocks, and then later in the day, they reverse it, which is called square off.
Square Off Example
Let’s get a deep understanding of square-off in trading or day trading.
Suppose Trader A buys 1000 shares of XYZ Co. from NSE using a stock broker at Rs 100 per share. On the same day, he sells all acquired shares of XYZ Co. At Rs 120 each where he also pays Rs 100 brokerage charges. After executing this trading activity, the net gain of Trader A will be 2,000 – 100 = 1.900.
How to Execute Square Off?
Executing square-off is easy with your regular stock trading app. All you need to do is to place a sell order for both calls and put one option at a time. You can do it easily with your regular stock trading application. When using your trading app to square off, you will get the option of BUY order to call option by pressing the “Ask Price” option and do similarly with a Sell order by going to “Bid Price.”
What is Square Off Timing?
To execute square-off in intraday trading, it’s essential to know the trading time for square-off. In most cases of stock brokers, the square-off for all stocks and F&O commodities happens between 3:15 PM and 3:20 PM. The square-off time for currency futures is mostly 4:45 PM to 4:50 PM. Whereas in the cases of MCX, the square-off time is 30 minutes before the closing time of the stock market. Squaring off for MCX can happen around 10:35 PM to 11:20 PM.
How is Square Off Different From Exercise An Option?
Squaring off is simply the reverse trading activity of the current position. For example, if you purchased 100 shares intraday, you sell the same shares later in intraday for profit, which is called squaring off. Whereas exercise an Option, you request for the Delivery of options of respective commodities, stocks, and cash.
What is Auto Square Off?
Many stock trading apps or brokers provide the option of an auto square-off feature. If you forget to close your open position before the market closing time, your trading app closes the trade on your behalf automatically. However, you should close your current position yourself before the market closes.
What is Auto Square Off Broker Charges?
If your stock broker or trading app closes your open position, you may have to pay Rs 20 to Rs 50, excluding 18% GST. The charges can vary based on the stockbroker you use for intraday trading and squaring off. So, to prevent additional costs, fines, penalties, or charges, it’s better to close your position yourself.
What Does Sell Off Mean?
It’s a condition when a trader in the stock market aims to sell a large number of stocks or securities in a short time. However, there is not any clear concept that differentiates it from a bear market. Instead, it’s the short-term moment where investors or traders wish to sell most of the stocks they acquire.
What is Stock Market’s Regular Trading Time?
Whether you are a beginner or intermediate trader, it’s good to know to square off trading times and avoid any late fee charges. In general, the market for the stock, F&O, and cash trading begins at 9:15 AM, whereas the market opens at 9: AM.
Is It Necessary to Square Off in Delivery Trading?
Here the stock you buy or sell at the beginning of the day and do not square off before the end of trading time, the trade goes into Delivery. And if you sell out the stocks and do not square off by the end of trading time for the same Delivery, it will require you to give Delivery of the stocks.
What If You Don’t Square Off Delivery?
If you do not square off in the option contract and hold it, plus the trade expires, you will lose the premium amount, taxes, and brokerage charges. Thus, it’s recommended to square off your open position before the expiry of the trade.
What If You Square Off Intraday?
When you square off intraday, the shares or stock you purchased in intraday will automatically be sold out the same day before the market closes.
What If You Don’t Square Off Intraday?
If you don’t square off intraday, your trading app will automatically square off your trade using their system. However, you will be required to pay an additional penalty fee. Thus, it’s good to square off your intraday before the market closes to avoid any additional charges to pay later.
Conclusion
Before you hand in square off to enjoy a short-term gain, it’s good to initiate intraday trading and get some sound experience. It will help you understand some key terms and opportunities to get benefits in future trades.
Furthermore, when operating a squaring-off strategy, make sure your trading app is up to date and connected with a stable internet connection, as it will help you open and close your position at the right time.
We hope you clearly understand squaring off and how you can benefit from it. If you keep willing to learn about such interesting trading terms and techniques, you can start staying tuned with this blog.