Definition
Square-off
Square-off is the closing out of an open position by taking an equal and opposite trade, either voluntarily by the trader or automatically by the broker when margins fall short or intraday positions near the cutoff.
In India, intraday (MIS) positions are auto-squared-off by the broker before a set cutoff time if the trader does not close them, since intraday products do not allow delivery carry-forward. Square-off also happens when margin is insufficient, forcing the broker to liquidate positions to limit risk.
For leveraged positions under MTF or derivatives, a margin shortfall can trigger involuntary square-off, sometimes at unfavourable prices in a fast market. Understanding a broker's square-off timings and margin policies is essential for active traders to avoid forced exits at the worst moment.
Related terms
- Margin (Trading)Margin is the collateral a trader must deposit to cover potential losses on a position, comprising components such as SPAN, exposure and mark-to-market margin in the Indian derivatives market.
- Margin Trading Facility (MTF)Margin Trading Facility is a SEBI-regulated facility that lets investors buy shares by paying only part of the value upfront, with the broker funding the balance against the shares as collateral.
- Day OrderA day order is valid only for the trading session in which it is placed; if it is not executed by the close, it is automatically cancelled and does not carry over to the next day.
- Stop-Loss OrderA stop-loss order becomes active and is sent to the market only when the price reaches a specified trigger level, used to limit losses or protect profits on an existing position.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.