How to Trade — Execution & Platforms

Q1. (6 marks) — 2 marks each (1 for definition, 1 for use case)

• (a) Market order: An order to buy/sell immediately at the best available current price. Definition (1). Use: when immediate execution matters more than price, e.g., exiting a fast-moving position (1).
• (b) Limit order: An order to buy/sell at a specified price or better; executes only if the market reaches that price. (1). Use: entering at a precise, favourable price (1).
• (c) Stop-loss order: A resting order that triggers (becomes market/limit) once price hits a set stop level, to cap losses. (1). Use: automatically exiting a losing trade to limit downside (1).

Q2. (6 marks)

Formula (2 marks): $\text{Shares} = \frac{\text{Capital} \times \text{Risk\%}}{\text{Entry} - \text{Stop}}$

• Risk amount $= 2{,}00{,}000 \times 0.01 = ₹2{,}000$ (1)
• Risk per share $= 500 - 480 = ₹20$ (1)
• Shares $= 2000 / 20 = \mathbf{100 \text{ shares}}$ (2)

Why: Position size is set so that hitting the stop loses exactly the pre-defined risk amount.

Q3. (5 marks)

• Leverage: Ability to control a position larger than one's own capital using borrowed funds from the broker. (1.5)
• Margin: The trader's own capital deposited/blocked as collateral for a leveraged position. (1.5)
• Margin required $= \dfrac{1{,}50{,}000}{5} = \mathbf{₹30{,}000}$ (2)

Q4. (5 marks)

• Margin call (2.5): A broker's demand that the trader add funds when account equity/margin falls below the required maintenance level, because losses have eroded the collateral.
• Auto square-off (2.5): The broker automatically closes (exits) open positions when margin is insufficient or at intraday cut-off time, to protect against further losses / recover its lent funds.

Q5. (4 marks)

• Peak margin (2): SEBI rule requiring brokers to collect the highest margin obligation observed during randomly sampled snapshots of the trading day (upfront), rather than only end-of-day margin.
• Effect (2): It reduced the excess intraday leverage brokers could offer; traders must now have full stipulated (VaR + ELM) margin upfront, cutting intraday leverage significantly.

Q6. (5 marks)

• Definition (2): The bid-ask spread is the difference between the highest price buyers will pay (bid) and the lowest price sellers will accept (ask).
• (a) Spread $= 250.50 - 250.20 = \mathbf{₹0.30}$ (1.5)
• (b) $\dfrac{0.30}{250.50} \times 100 = \mathbf{0.1198\% \approx 0.12\%}$ (1.5)

Q7. (5 marks)

• Cost per share $= 100.40 - 100.10 = ₹0.30$ (2)
• Total cost $= 0.30 \times 300 = \mathbf{₹90}$ (3)

Why: Buying at ask and selling at bid crosses the spread on both sides — the whole spread is lost per share.

Q8. (4 marks)

• Definition (2): Hotkeys are pre-configured keyboard shortcuts that instantly send pre-set orders (buy/sell, cancel, close) without navigating menus.
• Advantages (1 each): (i) Faster execution in fast markets; (ii) fewer manual entry errors / consistent sizing; (also acceptable: hands stay off the mouse, reduced slippage).

Q9. (4 marks) — 1 mark each (any four):

Timeframe/chart type, indicators (e.g., moving averages, RSI), watchlist/symbols, drawing tools (support/resistance, trendlines), volume panel, colour/layout template, alerts.

Q10. (6 marks)

• Definition (2): A price alert/notification is an automated signal (pop-up, sound, SMS, app push) triggered when a specified condition — such as price crossing a level — is met.
• Reasons (2 each): (i) The trader cannot watch all charts at once, so alerts flag opportunities/exits without constant monitoring; (ii) they reduce missed entries/exits and emotional/manual errors, freeing attention across many positions.

[
  {"claim":"Q2 position size = 100 shares","code":"capital=200000; riskpct=0.01; entry=500; stop=480; shares=(capital*riskpct)/(entry-stop); result=(shares==100)"},
  {"claim":"Q3 margin required = 30000","code":"margin=150000/5; result=(margin==30000)"},
  {"claim":"Q6 spread=0.30 and pct approx 0.1198","code":"spread=Rational('250.50')-Rational('250.20'); pct=spread/Rational('250.50')*100; result=(spread==Rational('0.30') and abs(float(pct)-0.1198)<0.001)"},
  {"claim":"Q7 total spread cost = 90","code":"cost=(Rational('100.40')-Rational('100.10'))*300; result=(cost==90)"}
]