Notes for Left Topics

Order Management

Order Management consists of entering orders, order modification, order cancellation and order matching.

Entering Orders

The trading member can enter orders in the normal market and auction market. A user can place orders in any of the above mentioned markets by invoking the respective order entry screens.

Active & Passive Orders: When any order enters the trading system, it is an active order. It tries to find a match on the other side of the books. If it finds a match, a trade is generated. If it does not find a match, the order becomes a passive order and goes and sits in the order book.  

Order Books: As and when valid orders are entered or received by the trading system, they are first numbered, time stamped and then scanned for a potential match. This means that each order has a distinctive order number and a unique time stamp on it. If a match is not found, then the orders are stored in the books as per the price/time priority. Price priority means that if two orders are entered into the system, the order having the best price gets the higher priority. Time priority means if two orders having the same price is entered, the order that is entered first gets the higher priority. Best price for a sell order is the lowest price and for a buy order, it is the highest price.

Order Modification

All orders can be modified in the system till the time they do not get fully traded and only during market hours. Once an order is modified, the branch order value limit for the branch gets adjusted automatically. Order modification is rejected if it results in a price freeze, message displayed is ‘CFO request rejected’.

Order Cancellation

Order cancellation functionality can be performed only for orders which have not been fully or partially traded (for the untraded part of partially traded orders only) and only during market hours and in preopen period.

Order Matching

The buy and sell orders are matched on Book Type, Symbol, Series, Quantity and Price. Matching Priority: The best sell order is the order with the lowest price and a best buy order is the order with the highest price. The unmatched orders are queued in the system by the following priority:

a)   By Price: A buy order with a higher price gets a higher priority and similarly, a sell order with a lower price gets a higher priority. E.g. Consider the following buy orders:

a.    100 shares @ Rs. 35 at time 10:30 a.m.

b.    500 shares @ Rs. 35.05 at time 10:43 a.m.

The second order price is greater than the first order price and therefore is the best buy order.

b)    By Time: If there is more than one order at the same price, the order entered earlier gets a higher priority. E.g. Consider the following sell orders:

a.    200 shares @ Rs. 72.75 at time 10:30 a.m.

b.    300 shares @ Rs. 72.75 at time 10:35 a.m.

Both orders have the same price but they were entered in the system at different time. The first order was entered before the second order and therefore is the best sell order. As and when valid orders are entered or received by the system, they are first numbered, time stamped and then scanned for a potential match. This means that each order has a distinctive order number and a unique time stamp on it. If a match is not found, then the orders are stored in the books as per the price/time priority. An active buy order matches with the best passive sell order if the price of the passive sell order is less than or equal to the price of the active buy order. Similarly, an active sell order matches with the best passive buy order if the price of the passive buy order is greater than or equal to the price of the active sell order.

What is an ISIN?
ISIN (International Securities Identification Number) is a unique identification number for a security. 

ETF

Think of an exchange-traded fund as a mutual fund that trades like a stock. Just like an index fund, an ETF represents a basket of stocks that reflect an index such as the Nifty. An ETF, however, isn't a mutual fund; it trades just like any other company on a stock exchange. Unlike a mutual fund that has its net-asset value (NAV) calculated at the end of each trading day, an ETF's price changes throughout the day, fluctuating with supply and demand. It is important to remember that while ETFs attempt to replicate the return on indexes, there is no guarantee that they will do so exactly.

By owning an ETF, you get the diversification of an index fund plus the flexibility of a stock. Because, ETFs trade like stocks, you can short sell them, buy them on margin and purchase as little as one share. Another advantage is that the expense ratios of most ETFs are lower than that of the average mutual fund. When buying and selling ETFs, you pay your broker the same commission that you'd pay on any regular trade. 

Spot vs. Future

	Spot Market	Future Market
Meaning	A market of commodities or securities in which goods are sold for ready cash and delivered immediately is known as Spot Market.	As opposed to spot markets, deals are stuck for future action in the future markets. A future contract can be defined as a type of financial contract wherein parties agree to exchange financial instruments like securities or physical commodities for future delivery at a particular price.
Settlement	Spot market is real time market for instant sale of commodities like grain, gold and other precious metals, Ram chips etc. It is a spot market because transactions take place on the spot.	Future contract is a standardized contract to buy or sell at a future date at a certain price.
Primary activity and Purpose	The primary activities of buying and selling are carried out in spot market. Purpose of spot market is to take delivery of shares or commodity i.e. genuine investment in physical assets.	Future market does not involve primary activity and it is speculative in nature. Purpose of future market is to take benefit of speculation or hedging though this market.
Prices	Prices are settled at current prices.	In the future market, deals are stuck at forward prices.
Role of Depository	Depository is having important role in cash segment of stock exchange.	There is no role of Depository in future market.