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Why Cant AMO Orders be Placed Beyond Circuit Limits

28 Jul 2023

After-market Market Orders are an important tool for Indian traders and investors, as they provide flexibility and convenience outside of trading hours. The Indian stock exchange is open from 9:30 a.m. to 3:30 p.m. each working day. Orders placed by AMO after trading hours are executed the following day. AMOs allow investors to react quickly to breaking news and execute trading strategies efficiently, despite the risks that may be associated with volatility and reduced liquidity. Learn how AMOs function.

How do you execute an AMO Order?

AMO orders are designed for investors who have to balance their daily routine with stock market investing. You can place AMOs after the market closes, at 3:30 p.m. Here's an example:

Say you plan to purchase 100 shares of stock XYZ. If you place an order after trading hours for 100 shares, your trade is executed the following day at the opening stock price. If you placed a limit-order, then your order will be sent to exchange at 9:15 am. The trade is completed if the pre-market price matches your limit order. If not, it is performed during market hours. Your broker will determine how much flexibility you have in setting the limit. You should check with your broker to understand the AMO structure for this DP.

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What you need to know about AMO Orders

AMOs are flexible, allowing you to change your order as often as you like before it is executed. Brokers usually don't charge for these orders. However, it is best to ask your broker if there are any hidden or additional costs. Orders can be made between 3:45 pm and 8:57 a.m., and they can be modified as often as needed. It may not accept weekend orders between 1 am and 5:30 am due to scheduled maintenance. AMO order timings vary by product and sector. For example, while you can order equity between 3:45 pm and 8:57 am, you can order F&O between 3:45 pm and 9:10 am.

AMOs can be used for almost any type of product, such as cover orders (CO), bracket orders (BO), cash-and-carry (CNC), intraday square-off margin (MIS), or normal (NRML). AMOs are a great way to give traders and investors more flexibility and plan their trading strategies.

Why is it not possible to order AMO beyond the circuit limits?

The Indian exchanges set upper and lower circuits to control artificial volatility. A limit order cannot be placed in AMO for a price higher than the circuit price. This is because AMO orders will only be executed the following day when the markets reopen. Circuit limits aren't imposed on stocks that have derivatives listed or on parts of indices that do not include derivatives. For these stocks, traders or investors can place an AMO limit order with no logical constraints.

What are the advantages and disadvantages of AMOs?

AMOs can be a good option for those who are not able to follow the markets during trading hours but still want to execute their strategies. We'll look at its pros and cons:

Pros:

AMO allows investors to capitalise on news that is made public after trading hours. They can make immediate decisions.

AMO offers convenience to investors by allowing them to trade at their own pace.

AMO allows traders to execute their strategies and profit from market movements before or after normal trading hours.

Cons:

Sensitivity: AMO orders can be highly sensitive to market reactions.

Lack of liquidity: Liquidity is typically low during pre-market hours, resulting in lower volumes and a higher probability of volatile execution price.

Price fluctuation: Outside of regular trading hours, price movements can be volatile and lead to higher spreads or increased execution risk.

Conclusion

The After Market Orders (AMOs) provide flexibility for Indian traders and investors to trade outside regular market hours. While they offer convenience and the ability to react to the news, AMOs also come with risks, such as volatility and reduced liquidity.

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 

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