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What is Square off in trading? Meaning, Auto square off, Timings Examples

As the title suggests, this blog post will answer the question "what is square off in trading?" We'll take a look at what it means to "square off" and how that relates to trading. We'll also go over some of the benefits that come with this type of trade.

Let's get started!

Square Off in Trading

First things first, let's define exactly what we're talking about when using "square off." To be more specific, there are two types of trades called squares: buy/sells or sell/buys which you can find on almost any online broker platform.

When placing these types of orders you have an option for either buying or selling depending on your needs.

Just like any other trade, you'll have a market order or a limit order option, but the difference with squares is that they require two orders to be placed in opposite directions at roughly the same time for this strategy to work.

To be more specific, Square Off in trading is the process of opening two opposite limit orders at approximately the same time. A buy square requires both a sell stop order and a sell limit order to open positions on opposite sides opposite direction of price movement. Conversely, a sell square uses sell limits and buy stops for the trade entries.

What is auto square off?

Auto square off is done by our broker to save us from any penalty. If you take an Intraday trade at MIS order, it means that you want to trade in that particular stock or instrument for that particular day only, and you don't want to hold it for the next day.

Another thing might be you don't have sufficient funds in your trading account so to trade into that stock, you took an MIS trade. As you know that during intraday trades we can even sell a stock that we did not even have in our Demat account. So, somehow if you miss to square off your position during the day then you may have to face an auction price for that stock as well as a penalty.

But don,t worry as most of the brokers like Zerodha and Upstox already have an auto square off feature that automatically closes our open intraday positions before the closing of market hours.

Auto Square off Charges

The brokers don’t square off automatically for free, they charge for it. The charges may vary depending on brokers to brokers but most brokers charge around Rs 20 to Rs 50 plus an additional 18 percent GST on it.

So, traders if you want to save yourself from these charges then you need to square off your daily intraday positions before 3.15 PM or have to convert your open positions to CNC.

Difference between square off and exercising an Option

To square off is to close a position. The term ‘square’ refers to the process of closing an open trade or changing it into cash.

To exercise an Option, on the other hand, means that you are exercising your right over the underlying asset by taking up the terms laid down in the contract.

Also, you can square off a position in three ways: by buying or selling the underlying asset, which is referred to as physical settlement; by taking delivery of the Option itself and then canceling it out (this is known as cashless exercise); or simply allowing your contract to expire.

Some Examples of Square Off in Trading

One of the most common examples is when a trader closes both sides of an open position. This shows that they are no longer interested in participating in this trade and want to be completely square with their trading account before moving on to another opportunity. 

Other types of situations where the term "square off" may show up include when traders need to close out or adjust positions due to market fluctuations, stop losses being hit, etc. 

Another example might be when you have multiple trades going at once but don't see your best fit within those trades so you're closing them all out regardless of whether there's money left on the table or not because it feels like time for something new rather than sticking around with these opportunities any longer.

How to Square off the position?

Square-off is the process of closing a position to realize profits or cut losses. A trader usually squares up positions when there are no clear signals for future price movement.

To square up a trade, you need correct indicators on your chart and these indicators will help you determine whether it’s time to close your current trades or not.

If your target has been achieved or you may think that there is no such movement in the stock as you expected, you can square off your positions.

If you have bought some shares then to square off the position you have to sell the same quantity of that stock. Just do the opposite in case you have sold any stocks as an intraday trade then you need to buy back the same quantity of shares to square off the position.

Square-off Timing

Let's take a look at the timing for Square Off in Trading. Between 3:15 p.m. and 3:20 p.m., most brokerages square off all equities and F&O positions immediately. 

The square of point in currency futures is 4:45 p.m. to 4:50 p.m., except on MCX, where it is 30 minutes before the market closes. On average, this period falls around 10:35 p.m. and 11:20 p.m.

Capitalizing on this, the liquidity-seeking funds square off in all cash and equity markets during these periods. The position taking mutual funds also try to square up for an early start in their next trading day's operations.

What is a sell-off?

Square-off and sell-off both pronounce a little bit similar, but both are two different terms. A sell-off is when a stock price falls in value. It’s been common practice for traders to use the phrase “selloff” to refer to a steep decline in the price of an asset.

A selloff occurs when investors panic and start selling their stocks, causing major companies to see major declines in stock prices.

When this happens, it puts pressure on banks who are holding these assets as collateral for outstanding loans they’ve made; if enough people want out at once, there isn't enough money available to support them all.

This can cause some serious problems with how financial institutions function - after all, they do need cash flow to remain liquid so that customers always have access to their funds without too much delay!

Conclusions:

Square-off is the process of closing an open position. This can be done manually or automatically depending on your broker and account settings.

You can set your target and stop-loss price after taking the trade, then your broker will automatically close the positions when this target or stop loss will hit.

The advantage to automatic square-offs is that you don't need to monitor them yourself, allowing you more time for other things like analyzing charts or performing manual trades in different markets.

But don't get confused automatic square-off with auto square-off that I explained above. If you have any further questions about how this works, feel free to leave a comment below!

FAQs

What is square off in Intraday?

When you take any Intraday positions at MIS order and closes the positions during the same day, we refer this as Intraday square-off or simply square of in Intraday. 

What happens if I don't square-off in Intraday?

If you have taken some positions on MIS order, that is only for doing an Intraday trade and somehow you forget to square-off your Intraday positions then your broker will auto square-off your positions on your behalf.

This is done by your broker to save you from any Auction trade or penalty.

Can option seller square-off?

Yes, you make a profit or loss when you square off your position by selling your Options in the market. Your profit or loss will be the difference between the premium at which you purchased the Options and the premium at which you sold them.

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