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How to Convert Trade And Open Positions

01 Sep 2023

Introduction

The process is called position conversion when you convert a trade from its original type and intent to another form. For instance, converting your position from a cash and carry (CNC) to a margin trade (MIS) or vice-versa is the conversion of a trade or position conversion. You can do the same process with the two most common trading strategies - intraday and delivery. 

Most traders use position conversion as a feature because it lets you go long-term with your positions. To better understand the feature, you must learn the different types of orders a stockbroker allows you to place. 

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Equity

  • Intraday trading involves the buying and selling of stocks within the same day
  • Delivery trading involves a holding period with different trading sessions
  • Margin trading involves the Margin Trading Facility (MTF)

Futures and Options

  • Intraday trading to buy and sell the scrip on the same day of trading
  • Carry forward involves taking a position that stretches for more than one day

How do you convert a position?

You can convert your delivery trades to intraday positions, margin trades to cash and carry, and vice versa. Visit your stockbroker’s website or trading app and follow the steps mentioned below:

  1. Use your login credentials to access your trading account on your stockbroker’s website or mobile application. 
  2. View your portfolio and select the stocks you intend to convert to your position. 
  3. Next, input the number of stocks you want to convert. 
  4. Once the selection is made, you will see an option for converting your delivery trade to intraday or your intraday position to delivery. 
  5. Select the option, and your request for conversion will be completed. 

The process of position conversion is easy and takes only a few minutes. 

When should you opt for position conversion?

Like many traders, you must be wondering why and when you should convert a trade. Here are some common reasons:

  1. If you make a wrong decision and your intraday MIS trade has not achieved the target price at the end of the day, you can use the position conversion feature to convert the MIS to a CNC trade. This way, you can hold on to your positions even for the next day. Changing your position to CNC lets you carry forward your profit or loss to the CNC trade. 
  2. Many traders use the convert position feature when investing in an MIS order for intraday trading but see that it already gives good returns on that particular day. The lucrative returns make them convert the MIS trade to a CNC trade. 
  3. If you invest in a company at CNC with a sudden update indicating that the company will suffer a loss, you need to convert your CNC order into an MIS trade. The convert position option saves you from incurring any losses and the additional expenses of a CNC trade. 
  4. Like the scenario above, imagine that the news update indicates a positive stock price movement. You will make more than the expected profit on the same day. Now, you can use the convert position feature on your stockbroker’s website to immediately convert the CNC trade to MIS trade, sell the stocks, and book your profits.  

Margin requirements for conversion

When you convert your intraday trade to delivery, it demands an additional margin. This means that if converting a position results in liability, you need to add funds to your account. While converting your position, it is crucial to maintain margin requirements. 

For instance, you buy one unit of ABC Company’s stocks for intraday at Rs. 3,500. Intraday trading requires a margin of 20%, which equals Rs. 700. If you convert your intraday position to a margin order, there will be no change in your margin requirements. But, if you convert the position to a delivery trade, your margin position will change. You must pay the full margin of Span and Exposure, which is Rs. 3,500. 

To sum it up

The position conversion feature allows you to convert any type of trade to another type. Depending on your requirements and investment choices, you can convert an intraday position to a margin trade or delivery or vice versa. Motilal Oswal’s trading platform lets you convert your trade and open positions quickly and conveniently. But before you convert your positions, remember to have a sufficient margin in your account. Your position conversion will fail if you don’t fulfil the margin requirements. 

 

Related Articles: Understanding the Nuances of The Three Drives Pattern | What is a Global ETF | Nuances of International ETF | What is trading on equity

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