Thread by @chartians

Freak trade - A daylight robbery?

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It was a calm trading day on last trading day of the week and from nowhere price shooted up in some of the contracts disrupting everybody's self esteem!
If we go through past two month's history, this was the fifth/sixth price surge. Past surge were on

🩸On 5th July, Nifty Futures surged 805 points.
🩸On 28th July, Nifty futures made downmove of 530 points.
🩸Bank Nifty 37000 strike price surged 2000 points.🩸Nifty 16450 for August expiry rose by 700 points.
🩸Bank Nifty 37100 PE surged to 1921.

These kind of repeated freak trades were common in SGX nifty . But it is becoming frequent in Indian markets recently! What has changed in Indian market which brought such volatility?
Answer is removal of Trade Execution Range!

Freak trade happens when there is a large buy/sell order at market price. If there are no sufficient matching sell/buy order at nearby prices, system keeps on buying/selling the next available best prices which leads to price surges in fraction of seconds.

🎯What is TER?
A risk management measure which ensured that market orders didn’t execute beyond this execution range as below.
5% for all futures contracts
Rs. 20 for all options with reference price between Rs. 0.05 to Rs. 50
40% for all options with reference price above Rs. 50

Which means, fluctuation of price above these mentioned levels will be regarded as invalid and no market orders will go through beyond this range.

🎯If its a risk management measure, why it has been removed?
This execution range was causing issues, especially during the market opening. When there were large moves at market opening, this reference price and range calculated based on previous closing price and other factors

could be far from the actual price. Even within the trading day when there were sudden large price moves, the actual price could be outside the range set by the exchange. Whenever the actual price was outside the trade execution range, no trades would get executed.

This meant not being able to enter or exit until the exchange increased the execution range manually.
This was causing even option price freeze.

🎯Now, the freak trades will vbe newe normal in indian financial markets. How can we escape from this?
Answer is SL limit order.
SL limit order is a type of SL in which we define a range of points between trigger price and limit price. Between the trigger and price,the order will

act as market order.
Eg, if trigger price is 80 and limit price is 90, as soon as price hits 80, the SL will get activated and system will check for matching orders which are between 80 rs and 90 rs. If there is no match, order will stay pending. If there is matching order,

position will get exited. If price goes beyond 90 rs and there was no exit happened between 80- 90 price band, the SL LIMIT ORDER WILL BE IN PENDING STATE. Which essentially means that your position did not get exited.

🎯 Having the SL Limit order gives us advantage of not exiting our position at random market prices.
Do proper risk management and dont go over leveraged by buying far OTMs which makes margin required to sell options minute and encourages us to sell huge quantity .

Trade safe, Trade responsibly, after all it is your hard earned money. Be reponsible for your own money.

Hope you have got some idea about the freak trade.
Kindly retweet for maximum reach.

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