How to Trade — Execution & Platforms
Level 4 — Application (Novel Problems, No Hints)
Time Limit: 60 minutes
Total Marks: 50
Instructions: Attempt all questions. Show full working. Round currency to the nearest ₹ and shares down to whole numbers unless stated otherwise. Assume Indian retail cash/intraday market conventions.
Q1. Position Sizing Under a Fixed-Risk Rule (10 marks)
A trader has a capital of ₹5,00,000 and follows a strict rule of risking no more than 1.5% of capital per trade. She wants to buy stock XYZ at an entry of ₹640 with a stop-loss at ₹622.
(a) Compute the maximum permissible number of shares under the risk rule. (4)
(b) The trader also has a position cap that no single position may exceed 40% of capital in notional value. State whether the risk-based size or the cap-based size is binding, and give the final share quantity. (4)
(c) If the trade hits the stop, what is the actual rupee loss on the final quantity? (2)
Q2. Leverage, Margin & Margin Call (12 marks)
An intraday trader deposits ₹80,000 as margin and takes a long position in a stock at ₹200, using the broker's 5× intraday leverage.
(a) Determine the notional value of the position and the number of shares bought. (3)
(b) The broker enforces a maintenance margin equal to 50% of the initial margin used. Derive the stock price at which a margin call is triggered (i.e., losses erode margin below maintenance). (5)
(c) If the price gaps to that trigger level and the position is auto-squared-off there, state whether the trader loses more, less, or equal to the maintenance margin, and justify with numbers. (4)
Q3. SEBI Peak Margin & Intraday Leverage (10 marks)
Under SEBI peak-margin rules, intraday leverage in the cash segment is effectively capped so that a trader must maintain the full applicable VaR + ELM margin upfront (assume combined = 20% of trade value for this stock).
(a) A trader wants a ₹6,00,000 intraday position. Compute the minimum margin required under peak-margin rules. (3)
(b) The trader only has ₹90,000 free margin. Compute the maximum intraday position size she can legally take, and the effective leverage this represents. (4)
(c) A discount broker advertises "20× intraday leverage." Explain, using the numbers above, why this claim cannot legally hold post peak-margin implementation. (3)
Q4. Spread & Execution Cost Impact (10 marks)
A trader executes a scalping strategy on a stock quoting Bid ₹149.90 / Ask ₹150.10. She buys 800 shares at the ask and sells 800 shares at the bid immediately (round trip), assuming no price movement.
(a) Compute the total spread cost of the round trip in rupees. (3)
(b) Brokerage + statutory charges add a flat ₹40 per side. Compute total round-trip cost including spread. (3)
(c) The strategy targets a 0.4% gross gain per trade. Determine whether a single round-trip at these levels is net profitable, and by how much (₹). (4)
Q5. Hotkeys, Multi-Position Management & Alerts (8 marks)
A day trader manages 3 simultaneous positions and configures hotkeys for fast exits.
(a) She sets a hotkey to sell 25% of the current position at market. Starting from 400 shares of stock A, she presses this hotkey three consecutive times (each scaling out 25% of the then-current holding, rounded down). List the share quantity sold at each press and the residual holding. (4)
(b) She sets a price alert on stock B at ₹512 and a second alert at ₹497, currently trading at ₹505. Explain what these two alerts are functionally serving as, and describe one execution risk if she relies solely on alerts (rather than resting orders) in a fast-moving market. (4)
Answer keyMark scheme & solutions
Q1 (10 marks)
(a) Risk per trade = 1.5% × 5,00,000 = ₹7,500. (1) Risk per share = 640 − 622 = ₹18. (1) Shares = 7,500 / 18 = 416.67 → 416 shares (round down). (2)
(b) Notional at risk-size = 416 × 640 = ₹2,66,240. (1) Position cap = 40% × 5,00,000 = ₹2,00,000. (1) Cap-based max shares = 2,00,000 / 640 = 312.5 → 312 shares. Since 312 < 416, the cap is binding. (1) Final quantity = 312 shares. (1)
(c) Actual loss if stopped = 312 × 18 = ₹5,616. (2) (Note: below the 1.5% budget because cap forced a smaller size — good risk hygiene.)
Q2 (12 marks)
(a) Buying power = margin × leverage = 80,000 × 5 = ₹4,00,000 notional. (1) Shares = 4,00,000 / 200 = 2,000 shares. (2)
(b) Initial margin used = ₹80,000. Maintenance = 50% × 80,000 = ₹40,000. (1) Margin call triggers when equity (margin − loss) falls to maintenance: loss allowed = 80,000 − 40,000 = ₹40,000. (2) Loss per share = 40,000 / 2,000 = ₹20. (1) Trigger price = 200 − 20 = ₹180. (1)
(c) At ₹180 square-off, realised loss = 2,000 × 20 = ₹40,000. (2) Remaining equity = 80,000 − 40,000 = ₹40,000 = maintenance margin exactly. So the trader loses equal to the maintenance margin (₹40,000), leaving ₹40,000. (2) (If price gaps below 180, loss exceeds this and equity falls under maintenance.)
Q3 (10 marks)
(a) Margin = 20% × 6,00,000 = ₹1,20,000. (3)
(b) Max position = free margin / margin rate = 90,000 / 0.20 = ₹4,50,000. (2) Effective leverage = position / margin = 4,50,000 / 90,000 = 5×. (2)
(c) Peak-margin rules require 100% of the applicable (VaR+ELM) margin upfront and penalise shortfalls. With a 20% margin requirement, max leverage = 1/0.20 = 5×. A "20×" claim implies only 5% margin — legally impossible post peak-margin, since brokers cannot fund the 15% gap without a penalty/violation. (3)
Q4 (10 marks)
(a) Spread per share = 150.10 − 149.90 = ₹0.20. (1) Round-trip spread cost = 0.20 × 800 = ₹160. (2)
(b) Charges = ₹40 × 2 sides = ₹80. (1) Total cost = 160 + 80 = ₹240. (2)
(c) Gross target gain = 0.4% × (800 × 150.10) = 0.004 × 1,20,080 = ₹480.32 ≈ ₹480. (2) Net = 480 − 240 = +₹240 profit → yes, net profitable. (2) (Buy notional taken at ask; using entry price ₹150 gives 0.004×120000=₹480, same conclusion — accept either.)
Q5 (8 marks)
(a) (rounding down each 25%) (1 mark per correct line, max 4)
- Press 1: 25% of 400 = 100 sold → residual 300.
- Press 2: 25% of 300 = 75 sold → residual 225.
- Press 3: 25% of 225 = 56.25 → 56 sold → residual 169. Sold: 100, 75, 56; final holding 169 shares.
(b) The two alerts (512 above, 497 below current 505) function as bracketing / breakout-and-stop trigger notifications — one flags upside momentum/target, the other flags downside/stop level. (2) Execution risk: an alert only notifies; it does not place an order. In a fast market the price can slip well past 497 before she reacts and submits a manual/market order, causing slippage and a worse fill than the alert level (or missing the exit entirely). (2)
[
{"claim":"Q1a risk-based shares = 416","code":"risk=0.015*500000; per=640-622; result=(int(risk/per)==416)"},
{"claim":"Q1b cap-based binding qty = 312","code":"cap=0.40*500000; q=int(cap/640); result=(q==312 and q<416)"},
{"claim":"Q2b margin-call trigger price = 180","code":"sh=80000*5/200; loss=80000-40000; trig=200-loss/sh; result=(trig==180)"},
{"claim":"Q3b effective leverage = 5x","code":"pos=90000/Rational(20,100); lev=pos/90000; result=(lev==5)"},
{"claim":"Q4 net round trip profit = 240","code":"spread=0.20*800; charges=80; gross=0.004*800*150.10; net=gross-(spread+charges); result=(round(net)==240)"},
{"claim":"Q5a final residual = 169","code":"h=400; [ (lambda:0)() for _ in range(0)]; \nfor _ in range(3):\n s=int(0.25*h); h=h-s\nresult=(h==169)"}
]