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Market organisation

In this chapter: Order-driven vs quote-driven markets · Order types · Margin trading and short selling

~3 min readLayer 4 · Professional CertificationsFree

Indian markets organisation: NSE and BSE both order-driven, T+1 settlement. Different from US (also order-driven plus quote-driven for OTC). Order types: market, limit, stop, stop-limit.

Foundation

Order types: • Market: immediate execution at best price • Limit: execute only at specified price or better • Stop: triggers when price crosses level (becomes market) • Stop-limit: combines (becomes limit on trigger) Margin trading: borrow from broker. Initial margin (typically 25-50% in India). Maintenance margin (call when equity falls). Short selling: borrow shares, sell. SEBI permits intraday short; restricts overnight short for retail (institutional via SLB).

Deep Dive

Indian market structure: • NSE: launched 1992, order-driven. Most-traded equity exchange. • BSE: oldest stock exchange in Asia (1875). • Both pre-trade transparent. • T+1 settlement (since 2023): faster than T+2 standard • SEBI as regulator, NSE/BSE as SROs US market structure: • NYSE, NASDAQ: largest • OTC pink sheets: smaller • T+2 settlement (moving to T+1) • SEC as regulator Margin requirements vary by: • Stock type (equity, future, option) • Broker policy • Volatility (SPAN margin in F&O)

Advanced

Subtle: dark pools (off-exchange venues for institutional trades) reduce price impact. Indian market: most institutional trades via bulk-deal blocks at exchanges with mandatory disclosure. Algorithmic trading: dominant in US (~60%); rising in India (~30-40%). Quant strategies, market-making, etc. Indian retail F&O activity: • Massive volumes (largely retail) • Most retail traders lose money • SEBI tightened algo and F&O participation rules in 2023 CFA tests order-type effects on execution.

Regulatory references
  • SEBI Trading Regulations
  • NSE/BSE bye-laws
  • CFA Institute curriculum
Common mistakes & pitfalls
  • Confusing different order types.
  • Not understanding margin call mechanics.
  • Treating short selling as easy strategy.

Frequently asked

How does Indian T+1 work?
Trade today (T); settled next business day (T+1). Faster than US T+2. Reduces counterparty risk. Implementation completed for most stocks 2023.
Are dark pools allowed in India?
No formal dark pools yet. Bulk-deal blocks must be reported on exchanges with mandatory disclosure. Less institutional dark-trading than US.

Practice questions

Click each question to reveal the answer and explanation.

Q 1
Indian equity settlement is:
  1. (a)T+0
  2. (b)T+1 (since 2023)
  3. (c)T+2
  4. (d)T+5
Correct: (b) T+1 (since 2023)
Indian equity: T+1 settlement since 2023. Faster than US T+2. Reduces counterparty risk.
Q 2
Limit order:
  1. (a)Always executes
  2. (b)Executes only at specified price or better
  3. (c)Executes at any price
  4. (d)Random execution
Correct: (b) Executes only at specified price or better
Limit order: only executes at specified price or better. Price priority. May not execute if price never hits.
Q 3
Margin trading risk:
  1. (a)Always profitable
  2. (b)Margin call risk if equity falls below maintenance threshold
  3. (c)No risk
  4. (d)Tax-free
Correct: (b) Margin call risk if equity falls below maintenance threshold
Margin call: broker requires more collateral if equity drops. Forced selling at low prices. Major risk.
Q 4
Indian retail F&O loss rate (per SEBI 2022):
  1. (a)10%
  2. (b)50%
  3. (c)~89%
  4. (d)100%
Correct: (c) ~89%
89% of retail F&O traders lost money per SEBI study. Major reason for 2023 tightening.
Q 5
Bulk-deal blocks in Indian market:
  1. (a)Hidden from exchange
  2. (b)Reported to exchange with mandatory disclosure
  3. (c)Off-exchange always
  4. (d)Privately settled
Correct: (b) Reported to exchange with mandatory disclosure
Indian bulk deals (≥10 lakh shares or 5% of stock): reported to exchange. Mandatory disclosure. Less dark-pool-like than US.
Educational purposes only. The numbers, returns, and examples used in this lesson are illustrative. Past performance does not guarantee future results. Mutual fund and securities investments are subject to market risks. This lesson is not investment advice; for advice tailored to your circumstances, consult a SEBI-registered Investment Adviser. Read our full disclaimer.