What Does CNC, MIS and NRML Mean?
When trading, knowing the types of orders is crucial for maximising your profit potential. For both experienced investors and inquisitive beginners, technical jargon such as CNC, MIS, and NRML can be daunting if they are not well-versed in their meanings and uses. By breaking down these concepts, you can make more informed decisions that align with your trading strategy. Each order type holds a distinct purpose, catering to participants with different risk profiles and investment objectives.
In this blog, we will explain CNC, MIS and NRML orders to help you make better investment decisions. Understanding various order types will help you improve your efficiency in the financial markets.
What are CNC, MIS, and NRML orders?
The acronyms CNC, MIS, and NRML stand for:
- CNC – Cash & Carry
- MIS – Margin Intraday
- NRML – Normal
These terms are used in stock trading to describe different types of orders or margin needs for trading. Now, let us understand each one of them separately.
Cash & Carry (CNC)
CNC orders are used for equity delivery trading, allowing traders to buy shares and hold them in their demat accounts until they decide to sell. No margin is given for CNC orders, and full payment for the stocks is done by the trader. For example, if you buy shares worth INR 5000, then you must have INR 5,000 in your trading account to complete the transaction.
There are no time constraints or expiration dates, and you can retain the shares for as long as you desire. When you buy shares with CNC orders, they are delivered to your account and are kept there until you choose to sell them. This type of order is considered ideal for long-term investors who want to accumulate shares and sell them later for possible capital gains.
Example: When you buy 100 shares of a company at INR 500 each through a CNC order, your total investment amount will be INR 50,000. The shares bought will be credited to your demat account, and you can hold them as long as you wish.
Similarly, when you sell shares through a CNC order, the shares are debited from your demat account, and the proceeds from the sale are credited to your trading account within the T+1 days (trade day plus one working day).
MIS Orders
MIS stands for Margin Intraday Square-Off. It is a type of order used for intraday trading. When you execute an MIS order, you are borrowing more money from your broker to buy or sell shares, with the understanding that you will square off all your trading positions by the end of the trading day.
If you do not close your position before the market closes, your broker will do it for you, regardless of your profit or loss. These orders carry more risk than CNC orders because of the leverage used, which can lead to huge losses if the market does not move in your preferred direction. MIS orders are a smart choice for traders who understand the market well and understand the related risks. However, it is important to use them carefully and have a clear trading strategy.
Example: Let’s say you want to buy 100 shares of ABC company at INR 2500 per share, and you have INR 25000 in your demat account. Without MIS, you can only buy 10 shares (INR 25,000/INR 2500 = 10 Quantity). With MIS, your broker can provide you leverage and help you buy 100 shares even though you do not have the full amount. Keep in mind that MIS orders need to be squared off before the market closes.
NRML Orders
NRML Orders, or Normal Margin Orders, are a specific category of orders used in the Indian stock market, mainly for trading futures and options (F&O). These orders let traders hold their futures and options positions until the contract expires, unlike day trading orders that must be sold on the same day. This flexibility allows traders to capitalise on trends that develop over several trading sessions. NRML orders require traders to keep the full margin amount set by the exchange.
Example: Suppose you place a NRML order on your trading platform to buy a futures contract and wish to hold the derivative contract for several days. The exchange will evaluate the required margin for this order based on the underlying asset’s current market price. Let us say that the margin requirement is INR 25,000. The broker will verify that you have enough funds in your account to cover the margin requirements. If the order is executed, then the trader holds a long position in the derivative contract.
Difference between CNC and MIS orders
| Basis | CNC Orders | MIS Orders |
|---|---|---|
| Full Form | Cash & Carry | Margin Intraday Square-off |
| Purpose | Used for equity delivery trading | Used for intra-day trading |
| Holding Period | You can hold the shares as long as you want to without any time limit. | Positions must be squared off by the end of the trading day. If you do not manually close the trade, the broker will do it on your behalf. |
| Margin & Leverage | No leverage is given. A trader needs to pay the full price of the shares when he buys. | Leverage is given, i.e., a trade can trade with a higher amount than the money he actually has. |
| Trading Strategy | Good fit for long-term investors who want to hold shares for weeks, months or years. | Good fit for day traders who want to make quick profits from short-term price fluctuations in the market. |
Conclusion
Understanding the differences between CNC, MIS, and NRML orders is important for effective trading and risk management. Aligning your choice of orders with your trading goals, such as short-term gains or long-term wealth accumulation, can help you navigate the stock market and optimise your returns. Understand how each order type aligns with your trading plan and trade with a clear strategy.
Frequently Asked Questions (FAQs)
Do I get leverage in CNC orders?
No, CNC orders do not provide leverage. One must pay the full amount for the shares.
Is trading done via CNC orders risky?
Trading with CNC orders is generally less risky as it does not involve leverage, and you can hold the shares as long as you want without any time restriction.
Can I convert an MIS order to CNC?
Some brokers allow you to convert MIS orders to CNC if you want to hold the shares overnight. However, you will need extra funds to hold the shares overnight.
Can NRML orders be used for intra-day trading?
NRML orders can be used for intraday trading, but they are mainly used for carry-forward trading in futures and options.
Which order type should I use for long-term investing?
CNC is best for long-term investing since it allows you to hold stocks in your demat account without any time limit.
