You must’ve come across the term MIS on the order screen while trading stocks online. It’s typically placed next to other orders such as Delivery or Investing.
So many options can be confusing for a beginner. But worry not! This blog will help you understand what MIS is in the share market and why it is used.
What is MIS in the Share Market?
MIS is a stock market order used for intraday trading in which the buy or sell order placed is squared off on the same day before the day’s close.
The full form of MIS in the share market is Margin Intraday Square-off. Intraday traders use it for two reasons:
- It’s built specially for day trading
- It comes with 5x leverage
By offering 5x leverage, MIS enables traders to hold intraday positions with less than usual capital in various instruments such as stocks.
To phrase it differently, when you place an MIS order, you are borrowing a percentage of the order value from your broker to execute the trade.
For example, if Mr. Cash wants to buy 10 stocks worth Rs. 100 as a normal or investing order, he’ll have to pay Rs. 1,000.
However, an MIS order will allow Mr. Cash to control the same number of stocks for just Rs. 200.
This comes with its benefits and risks which we will discuss later. For now, you need to know that any MIS order must be squared off during the same session.
Mr. Cash can not carry forward the position overnight. Otherwise, the broker can automatically liquidate the position on your behalf. This is known as auto square off and it carries additional charges.
How is MIS Used in Intraday Trading?
The following section will walk you through the various ways in which MIS is used for day trading.
1. For Placing Intraday Trades
MIS is useful for making intraday trades. Positions must be squared off before the market closes as MIS orders are exclusively for intraday trading. It is a part of other intraday orders such as Bracket Orders and Cover Orders.
2. For Trading on Leverage
By using the margin provided by the broker during the MIS order, traders can leverage their capital. Thus, they can acquire more extensive positional control.
3. For Risk Management
Traders have limited vulnerability to overnight risks with MIS orders being intraday.
This minimizes the possibility of unforeseen market moves impacting their position.
Paired with a trailing stop loss, MIS can be quite profitable for trades and minimize the risks.
Benefits of Using MIS in the Share Market
Here are two major benefits of using MIS in the market.
1. Quick turnaround
As positions are closed on the same trading day, this promotes discipline and prevents emotional decision-making. This means traders can gain profit on the same day.
2. No Overnight Risk
MIS orders prevent overnight risks and market gaps as they are designed for intraday trading. Any event post-market hours does not impact the profitability of traders.
Risks of using MIS in the share market
Here are two major drawbacks of using MIS in the market.
1. Automatic Square-off
MIS orders can result in unanticipated losses if traders do not square off their positions by the stipulated time.
This is because the broker has the right to act on behalf of the traders and automatically closes the open positions.
2. Market Volatility
Abrupt price changes can lead to subsequent losses as intraday trading is extremely volatile. Dhan has Trader’s Controls for you to manage risk.
MIS vs Other Order Types
|Feature||MIS||Cash and Carry||Normal||Limit||MTF|
|Used In||Day trading||Investing||Investing||Trading/|
Let’s understand this difference to better differentiate between MIS and other order types.
1. MIS vs CNC (Cash and Carry)
In contrast to MIS orders, CNC orders allow trades to hold equities beyond the trading day, thus being suitable for long-term investment. On Dhan, we call this an “Investing” Order.
2. MIS vs NRML (Normal)
Normal orders are ideal for holding overnight positions. They do not have any time constraints like MIS orders.
3. MIS vs Limit
Limit orders are placed to close a position when a certain price target is triggered.
On the other hand, MIS order gives leverage to take on large trades. Limit orders can be placed in addition to MIS orders for the same trade.
4. MIS vs MTF
Both MIS and MTF give you access to leverage, but MIS can only be used for day trading while MTF can only be used for delivery trading.
That’s why day traders don’t use MTF, and swing traders or positional traders don’t use MIS orders.
Common Misconceptions about MIS
MIS orders do not guarantee profits due to leverage. Profit and loss are based on market movements.
Also, contrary to common perception, MIS orders are not risk-free, they pose their own unique set of downsides.
Thus, it is important to research well and trade based on risk appetite.
Should You Use MIS While Stock Trading?
MIS orders help intraday traders to hold bigger positions with lesser capital.
This leverage is particularly attractive for capturing small intraday profits through a volume of trades.
The other reason why traders use MIS is logic. The alternative to placing a MIS order is a Delivery order, which isn’t optimal for an intraday trader.
You should evaluate the use case of MIS orders based primarily on your risk profile. If day trading is not for you, MIS orders are not for you.
That said, if you have the capital, knowledge, and nuance for intraday trading, then MIS orders can be your go-to.
It is a crucial tool for intraday traders trying to optimize capital efficiency.
MIS in the share market provides leverage and rapid turnaround opportunities.
For successful MIS implementation and responsible trading decisions, understanding risk management and implying correct trading strategies is the key.
If you are seeking a reliable platform for your trades, start your trading journey with Dhan, India’s leading online trading and investment platform.
The following section contains all the other reasons why MIS is used in intraday trading.
Like this? Then you’ll love:
- Arbitrage Trading in India
- How to Earn 1 Lakh Per Day from Share Market?
- Day Trading Futures: Yes or No?
- Swing Trading vs Day Trading: Meaning, Differences, Pros, & Cons
Q. Which is better MIS or NRML?
MIS is better for intraday trading while NRML is suited for other forms of trading and investing.
Q. Can I sell MIS shares the next day?
No, you can not sell MIS shares the next day as it is exclusively an intraday trading order.
Q. What is the exit time for MIS orders?
MIS orders are squared off at 3:20 PM on most platforms, 10 minutes before the market closes.
Q. What happens if MIS is not squared off?
If MIS (Margin Intraday Square Off) is not squared off by the end of the trading day, your broker will square it off on your behalf, which may carry additional charges.