Disclosed Quantity in Share Trading: When traders start trading through online trading platforms, there are some questions that pop up in their minds. One of the questions which come to a trader’s mind is “What is disclosed quantity in the share market and how to use it?”
Let us discuss this topic in detail and find out how traders can use it in their day trading. By the end of this article, readers will have an overview of what a disclosed quantity is.
A Disclosed Quantity condition means traders are allowed to disclose only a part of their total order quantity to the market. Disclosed quantity, however, cannot exceed the total quantity of the stocks a trader is purchasing. In simple words, disclosed quantity is a feature that masks the actual order size.
If a trader wants to buy 10,000 shares of a company but chooses to disclose only 1500, everybody else in the market will see their order size as 1500. It is like a trader is protecting his/her self-interest.
Benefits of Disclosed Quantity in share trading market
The stock exchange has the liberty to set minimum disclosed quantity criteria and can change it from time to time. Once a part of the order gets executed, the next part gets automatically disclosed to the market. More often than not, traders make use of this feature while placing large and big orders.
This is because it can help in reducing impact costs. This feature also helps in getting a better execution since only a portion of the large order is disclosed.
What is the Impact Cost?
Impact cost is nothing but the difference between the actual traded price and the price of the stock when this order was placed. Let us explain this with the help of an example.
For example, if a market order for the purchase of 2000 shares was placed at the time when the stock was trading at INR110, and if the actual price at which this was executed was INR110.5, the difference of INR0.5 per share is the impact cost. In our example, the impact cost for the order will be INR0.5 x 1000 = INR500.
In the same way, if the limit order for purchasing 1000 shares was placed at INR500 when the stock was trading at INR500 and was later changed to INR500.5, then INR0.5 per share will be the impact cost. By now, it should be clear that impact cost goes up as and when the order size increases.
Therefore, traders executing large order values might lose a lot more money to impact costs in comparison to all the other charges combined. Other charges include STT, brokerage, etc.
This feature is mainly designed for traders operating in big position sizes. Let us assume that an HNI wants to buy 10 lakh shares of some company at the given price. If he exposes the full order size to the public, everybody will know that the demand for that company’s shares is increasing.
This will also shoot up the prices. Looking at this immediate increase in demand, other traders will enter this stock and they will try to benefit from the increase in the price. Therefore, the actual trader will end up paying more for the same quantity of shares.
Using the feature of disclosed quantity in share trading comes with several benefits. Firstly, this feature helps in reducing the volatility in the stock. A trader has decided to disclose only the selected quantity to the market, which gives the impression that the order book has been reasonable.
Therefore, the chances of the stock being volatile is minimal. Another benefit of using this feature is that it helps in reducing the speculation by operators.
The 10% rule in Disclosed Quantity
For NSE/BSE equity and NSE CDS orders, the minimum disclosed quantity has been set at 10% of the actual order quantity. So, if the order for 10,000 shares is being placed, the disclosed quantity cannot be lower than 1000. The restriction came into effect so that there can be a reasonable representation of the order book.
Who should use this feature?
This feature is mainly for big traders. If a trader is not trading in crores, there is no point in using this feature. For a retail trader, using this feature will be a waste of time and effort.
Restrictions on placing a Disclosed Quantity Order
The disclosed quantity orders are allowed only in Equity (Cash), Currency, and Commodity (MCX). These orders are not allowed in the futures and options (F&O) segment. For MCX, disclosed quantity has been set at 25% of the actual order quantity. The disclosed quantity orders are prohibited in pre-open and post-market closing sessions.
How to use disclosed quantity order?
Big traders can use the feature of disclosed quantity by logging into their digital trading accounts. If they click on the buy or sell button on the screen, a separate window opens up. In this window, they can place an order and they can enter the real quantity they wish to buy.
In the same window, there will be a space specifically for mentioning disclosed quantity. Traders can enter the required quantity in that space and then they can submit the order.
The disclosed quantity feature is not related to the trade execution. The trade will get executed in part or in full of the actual quantity. However, this is based on order matching.
Disclosed Quantity in Share Trading option is not suitable for long-term investors. While this option is being widely used by big traders, investors need to be watchful when they execute their trades. Retail traders will not find this feature beneficial because their impact cost will not be higher. As impact cost depends on the quantity of the order, big differences are noticed only when HNI traders execute their trades.
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