Square Off

By Rohit Malik

April 25, 2020

What is the meaning of Square Off in trading?

In trading terminology, square off or squaring off a position means making a trading position net-zero by taking the reverse trade. Or in other words, you close your existing trading position.

In most cases, square off is the term used for intraday trading of shares or derivative trading.

For example,

You, as a day trader, bought 100 SBI shares around 9:30 AM. Then around 11:30 AM or 2 PM, you see that the price is up by 10-12 points. Now, you can sell at this higher price to book your profit. This selling of your trading position is called squaring off.

For example, in futures, if a trader is long in Nifty (NSE) futures at 9250 at 1 lot, then, to book profit, he sells the Nifty future at 9300. When he sold the Nifty future, his net position in Nifty future becomes zero. This is square off.

Frequently Asked Questions

What happens when I don’t square off my position?

If you don’t square off your position, then your trading position is settled. This means, if you have bought futures of stock, then on the expiry of the contract, it will be physically settled and you will have to take delivery of those shares (equal to lot size) by paying full price.

If you shorted a stock, then you have to deliver those shares on the settlement.

What happens if you don’t square off intraday?

Just like the example above, if you don’t square off your intraday position, then it is considered as normal trade and dealt accordingly.

This means, the in cash intraday buy positions, the share will be considered as bought for delivery and you will have a margin shortage the next day. You will need to deposit the full amount equal to buying those shares to clear your margin shortfall liability.

In case you have shorted the shares and didn’t clear you position by the end of the day, it is a little more difficult. In such a scenario, if you don’t have those shares in your Demat account, then it leads to short delivery and it goes to auction. In the auction, shares are bought at whatever cost available and you need to pay the difference.

What is the square time of Zerodha/Upstox?

In the case of intraday trading, MIS orders are used. All the MIS orders are squared off by the RMS (Risk Management System) of the broker within the last few minutes of market timings.

In case of discount brokers like Zerodha/Upstox, the cut off time for squaring off is normally 3:20 PM. If there is any change, it is notified by the broker on their terminals. In the case of normal brokers, they have timings of square off from 3:15-3:25 PM.

This cut off time of squaring off, of intraday positions, depends on the volatility of the market & technical factors.

In April 2020, Zerodha levied an extra charge of ₹ 50 for automatic square off of intraday positions by RMS. This move was aimed at traders who keep their positions open until the last moment of the trading day. This leads to a surge of orders in the last few minutes leading to failure of orders in certain cases.

What is Square Off in delivery trading?

Though this term is mainly used for intraday or futures & options trading, sometimes it is also used for delivery trades. In such a case, usage of this term refers to cases when a stock position in cash was taken to benefit from a small timeframe like 2-4 days. And then the position is cleared.

Few brokers allow margin trading for the time period of 5 days and these trades refer to such time frame only.

About the author

Rohit Malik

Enter your text here...A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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