Understanding Square Off in Stock Market: With the advancement of technology, many individuals have come forth to trade and invest in the stock market. Individuals can now earn in the market through various methods like long-term investing, day trading, futures trading, options trading, swing trading, and so on.
While trading in stocks, you must have come across a term known as square off in stock market, which is quite commonly used. In this article, we are going to find out what is square off in stock market, the time limits to square off different positions in the market, and auto square-offs.
What is Square off in Stock Market?
Square off is a settlement method wherein investors/traders reverse the positions they hold. If an individual has bought or sold a particular number of shares and then reverses the position by executing the opposite order for the number of shares, it will be considered a square-off.
Let us understand this with a help of an example:
Case 1: Suppose a trader buys 100 shares of company X. Later that day, the trader decides to sell all the shares which he has bought. This means that the trader has squared off the position. It would not be considered a square-off if only 90 shares were sold by the trader.
Case 2: Suppose a trader sells (or shorts) 100 shares of company X. Later that day, the trader decides to buy all the shares which he has shorted. This means that the trader has squared off the position.
Through these examples, we can understand square off in stock market is converting your net position to zero.
What is Auto Square off in Stock Market?
If an individual does not close the open position before the deadline, the platform will automatically square off the positions at the current market price.
Shares held with a delivery position can be held for any number of days and thus, they won’t be squared off automatically.
Time limit to square off different positions
Here are the date & time frames to square-off different positions in the market:
1. Square off time in Equity or Cash Segment
If an individual takes up an intraday position in the cash segment, the position should be squared off within a day between 9:15 AM to 3:20 PM. At 3:20 PM intraday positions will square off automatically.
In the case of a delivery position, an individual can square off the position on any day when the markets are open from 9:15 AM to 3:30 PM.
2. Square off time in Equity Derivative Segment
If an intraday position is taken in Future or Options, it should be squared off between 9:15 AM to 3:25 PM after which the position will be squared off automatically.
In the case of the weekly options, the positions should be squared off by Thursday before 3:25 PM after which it will be auto squared off. In case of a holiday on Thursday during the week, the expiry will be moved to the previous day.
When a future or options contract is taken up on a monthly expiry, the positions are to be squared off on the last Thursday of the month before 3:25 PM after which it will be auto squared off. If it is a holiday on the last Thursday of the month, the positions will be squared off on the previous working day.
3. Square off time in Currency Derivative Segment
If an intraday position is taken in the currency derivative segment, it should be squared off between 9:00 AM to 4:45 PM after which the position will be squared off automatically.
In the case of the weekly options, the positions should be squared off by Friday before 4:45 PM after which it will be auto squared off. In case of a holiday on Friday during the week, the expiry will be moved to the previous day.
In case the position is taken on a monthly expiry, the positions are to be squared off two days before the last working day of the month before 4:45 PM after which it is automatically squared off.
4. Square off time in Commodities Segment
If an Intraday position is taken in the commodity derivative segment. It should be squared off between 9:00 AM to 25 minutes before the closing of the market.
The expiry dates for Commodity contracts are different for different commodities. The commodity contracts should be squared off before 25 minutes of the market closing on the expiry date. If the contracts are not squared off before this time, they will be auto-squared off.
If there is a holiday on the expiration date of the contract, the expiration date will be moved to the preceding day to the expiry date.
The Commodity segment is divided into three categories and each of the categories has separate market timings. Below is the table showing the market timing for each of the categories:
Daylight savings is a practice in the US where the clock is set one hour in advance when there is longer daylight during the day, so that evenings have more daylight.
The positions should be squared off 25 minutes before the above-mentioned closing timings.
Also Read: What is The Minimum Money I Need to Start Stock trading in India?`
What are Auto Square Charges?
If you fail to square off your position within the prescribed limit time in the market, the broker will square off your position on your behalf, for which he imposes a penalty fee on you. These are called square-off charges. This can impact your overall profit position.
In Closing
In this article, we discussed what is square off in stock market and the timings for the square-off. In short, square off in stock market is converting your net position to zero.
Moreover, while investing in the stock market, it is important to check the time limit for executing your position and square off your positions on time. This can help you avoid unnecessary expenses which can impact the percentage of your profit.
This is all from our side regarding square off in stock market. To read more such articles on the stock market, you can visit FinGrad.
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