OPEN APP
Home / Markets / Stock Markets /  What Zerodha founder said on NSE doing away with stop-loss market orders for options
Listen to this article

A stop-loss market order, which is used to buy or sell stocks placed to limit the losses when you fear that the prices may move against your trade, won't be available for options in trading. National Stock Exchange (NSE) is stopping this facility from 27 September. Online broking firm Zerodha's co-founder Nithin Kamath said this should help avoid freak trades.

"Starting Sept 27th, Stop-Loss Market (SL-M) orders won’t be available for options. @NSEIndia is stopping the facility. This should help avoid freak trades and reduce their impact significantly, Nithin Kamath tweeted.

 

What is stop-loss 

Stop-loss can be defined as an advance order to sell an asset when it reaches a particular price point. It is used to limit loss or gain in a trade.  This is an automatic order that an investor places with the broker/agent by paying a certain amount of brokerage.  For instance, if you have bought a stock at 200 and you want to limit the loss to  95, you can place an order in the system to sell the stock as soon as the stock comes to 95. Such an order is called 'Stop Loss', as you are placing it to stop a loss more than what you are ready to risk.

Earlier, in August, Nithin Kamath also suggested the use of stop-loss limit orders over stop-loss market orders, especially when trading contracts with a shallow market depth.

"If you have placed stop-loss orders, freak trades on the exchange can trigger your pending stop-loss orders. So if you had bought an Index call option at 80 and stop-loss at 70, a freak trade at 50 would trigger your stop-loss order; there is no way to avoid triggering a stop-loss order due to a freak trade. But to ensure your stop-loss order triggered doesn’t have a high impact cost due to freak trades make sure to use stop-loss limit orders, he said.

“When trading the markets, there are certain things in your control and many that aren’t. A good trader always does whatever to reduce risk on things that can be controlled, like using limit orders instead of market orders and using SL over SL-M, especially when trading contracts with a shallow market depth," he writes.

What is the difference between SL-M and SL

For example, if you want to place a stop loss. From positions tab, you need to click on exit and you will get a sell window. Select SL/SL-M and provide the trigger price as the price in which you want your stop loss need to be triggered. If you have chosen, SL-M, then it will get executed as market order and gets filled with best available bid price. If you have chosen SL, then you need to enter price as well like in a limit order.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Close
×
Edit Profile
My ReadsRedeem a Gift CardLogout