Did you know that the financial markets in India can be divided into two distinct segments based on when you take delivery of the financial products traded? First, you have the cash segment or the spot market where you get immediate possession of the stocks or securities traded. Then, you have the derivatives segment where the actual trade occurs at a specific future date. Trades can also be classified as intraday or delivery transactions, depending on whether they are closed within one trading day or left open overnight.
For each type of trade, you need to use a specific type of order — like CNC, NRML or MIS. So, what is CNC, what is MIS and what is NRML? When should you use each type of order? Let’s discuss the answers to all these questions.
Know More About Order Types in Stock Market
What is CNC in Trading?
CNC is short for Cash and Carry. It is a type of order used to take delivery of equity shares in the stock market. In other words, CNC orders are used for delivery-based trading in the cash segment of the equity market. You can use this type of order when you want to hold a position overnight.
Since this is not an intraday trade, no leverage is available for CNC orders. Additionally, you cannot open short positions using CNC orders because short trades are only permitted in the intraday trading segment. That said, CNC orders can be used to open long positions, take delivery of shares and close such long trades.
You may use a CNC order to initiate a long delivery-based trade. However, if you use another CNC order to close that trade in the same trading session, the entire trade will be considered an intraday transaction rather than a delivery-based trade.
What is MIS in Trading?
MIS is short for Margin Intraday Square-Off. As the name indicates, you can use this type of order to carry out intraday trades in the equity and derivatives segment. Such orders must be closed within the same trading day. Otherwise, they will automatically be squared off and not be carried overnight.
Intraday trades placed using the MIS order type are eligible for intraday leverage offered by stock brokers. The extent of leverage varies from one service provider to another, but ultimately, this feature helps you take larger positions in the intraday trading segment with relatively low capital. While this helps you trade larger holdings, it also amplifies the risk accordingly.
What is NRML in Trading?
NRML is short for Normal. This type of order is typically used for positions other than intraday trades in the derivatives market. You can use an NRML order to carry your futures or options positions till expiry (or for several trading days, even if it is not until expiry). It can also be used for delivery-based trades of currency. Since it is not an intraday position, the concept of intraday leverage does not apply to an NRML order.
CNC vs MIS Orders
Now that you have seen what CNC is, what MIS is and what NRML is, let us delve into how these types of orders differ from one another. First, let’s compare CNC and MIS orders.
| Particulars | CNC Order | MIS Order |
| Meaning | Cash and Carry | Margin Intraday Square-Off |
| Purpose | Used for delivery-based equity trading | Used for intraday trading |
| Leverage | No leverage is available and full payment is needed | Leverage is often provided by stock brokers, so you can trade with margins |
| Holding Period | Stocks purchased using CNC orders can be held indefinitely | MIS positions must be squared off within the same trading day |
| Auto Square-Off | No auto square-off | Auto square-off before the market closes |
| Risk | Lower risk because there is no forced square-off | Higher risk since positions are automatically closed by the end of the trading day |
| Settlement | T+1 settlement cycle | No delivery, so only intraday profits or losses |
| Suitable For | Investors with a medium-term or long-term outlook | Intraday traders who wish to profit from daily price movements |
MIS vs NRML Orders
Let us now take a closer look at how MIS orders and NRML orders differ from one another.
| Particulars | MIS Order | NRML Order |
| Meaning | Margin Intraday Square-Off | Normal |
| Purpose | Used for intraday trading | Used for positional trades in the derivatives segment |
| Leverage | High leverage that allows you to trade with margins | No intraday leverage available |
| Holding Period | Holding period is just one trading day since positions are squared off intraday | Holding period is more than one trading day and often lasts till expiry |
| Auto Square-Off | Positions are automatically squared off before the market closes | No auto square-off, so your trades only close when you manually exit them |
| Risk | Higher risk | Lower risk |
| Cost of Carry | No cost of carry since positions are not held overnight | Cost of carry applies for overnight trades |
| Suitable For | Intraday trading across equity, F&O and commodities segments | Positional trades in the F&O and currency trading segments |
Which Type of Order to Use?
Knowing what NRML is, what MIS is and what CNC is is one thing. However, you should also be clear about which order to use when.
Ideally, CNC orders are best used for delivery-based trades in the equity market. So, if you want to hold stocks for the long term (or even overnight), you can use CNC orders. Remember though, that there’s no leverage involved and you will have to make the full payment required.
MIS orders, on the other hand, are best suited for intraday trades where you buy and sell stocks or securities within the same trading day. You can use this type of order if you want to take advantage of daily price movements in a specific asset. While you get the advantage of leverage here, your position will be automatically closed when the trading session ends.
NRML orders can be useful if you want to trade positionally in the F&O or currency segments. You can use these orders if you want to hold a position overnight or longer. That said, remember that in certain derivatives trades, you will have to deposit an initial margin as well as a maintenance margin to keep your positions open.
Conclusion
This sums up what NRML is, what MIS is and what CNC is. You can use the appropriate type of order depending on the market segment you want to trade in and the type of trade you wish to execute. Whichever type of order you choose, ensure that you understand the terms and conditions associated with that trade, so you can plan your entry, maintenance and exits accordingly.
FAQs
Can I square off CNC orders on the same day?
Yes, you can close your CNC positions on the same trading day. However, if you do so, your transactions will be treated as intraday trades.
What happens if I do not square off my MIS trade?
If you do not manually close your MIS position, your stock broker will automatically square off this trade before the market closes to ensure that no intraday positions are carried forward overnight.
How does leverage work in MIS orders?
In MIS orders, stock brokers offer leverage that lets you take larger positions with less capital. For example, if a stock is trading at ₹1,000 and your broker offers 5x leverage, you can buy five shares worth ₹5,000 in total with just ₹1,000.
Do NRML orders require full margins?
Yes, NRML orders typically require an initial margin to open a position and a maintenance margin to keep the position open. The maintenance margin may vary based on the changing level of risk associated with the trade.
What happens to NRML orders if the margin available is insufficient?
In case the margin is insufficient, your broker will issue a margin call asking you to deposit more funds. If you do not meet this call, some or all of your positions may be liquidated to meet the shortfall.
