Selling Stocks at a Target Price: Can You Use Zerodha for Cash and Carry Trading?

When it comes to selling stocks to a friend or using Zerodha for cash and carry trading, there are specific rules and procedures to follow. In this article, we’ll explore whether you can directly sell stocks to a friend via any brokerage firm, and how the process can be done indirectly. We’ll also delve into the nuances of using Zerodha for trading, including the different product types available and their implications on your trade.

Indirect Ways to Transfer Shares

Directly selling your shares to a friend is not possible through a brokerage firm. However, you can transfer your shares to your friend’s Demat account and instruct them to sell the shares, putting the money in your account. This indirect method allows your friend to hold the shares for you and facilitates the transfer of funds.

Trading via Stock Exchanges

Trading through the stock exchanges, such as the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE), is a much more regulated process. While you may have the flexibility to transfer shares through your Demat account, directly selling shares to a friend and then converting them back into cash via a brokerage firm is not supported by the stock exchanges.

Understanding Zerodha Product Types

Zerodha offers various product types to accommodate different trading and margin requirements. It’s important to understand the implications of each product type to ensure you’re making the right trades. Let’s break down the key differences:

MIS (Multi-leg Intraday) - For Intraday Trading

The MIS product type is designed for intraday trading. With this product type, you can trade up to 3 to 10 times your capital on each trade. However, any open positions must be squared off by 3:20 PM. This product type is ideal for leveraging your capital to make a larger gain or loss.

CNC (Cash and Carry) - For Long-term Holdings and Settlement

If you want to hold onto your shares for the long term, you should use the CNC product type. With CNC, you pay the full value of the trade upfront, and the settlement happens the next day. This is commonly referred to as cash and carry trading, where the transaction is finalized with the exchange of cash and shares through a settlement process.

NRML (Normal) - For Overnight Trades

The NRML product type is suitable for trades that you wish to hold overnight. You will need to keep a buffer of the full exchange stipulated margins for the duration of the trade, as the position will stay open until the market closes.

Margin Policies and Leverage

Zerodha provides margin opportunities to traders, but it’s important to know when to use this leverage. For in-depth information on their margin policies, please refer to the referenced blog on Zerodha's Margin Policy. Here’s a quick summary:

Intraday Trading: If you want to trade on intraday terms, you must specify the product type as MIS, even if you don’t plan to square off your positions. In case you forget to square off, all positions will be closed by 3:20 PM. No Margin Required: For trades that don’t require leverage, use the product type as CNC. In this case, you need the full amount to buy or sell stocks. Stock Index Derivatives: For stock or index derivatives, an initial margin of 40% of the exchange stipulated margin is required for intraday trading. Use the product type as MIS for these trades. Commodity Futures: For intraday trading in commodities, a 40% margin is required using the product type as MIS. Overnight trades require the full margin.

Scenarios for Overnight and High Margin Trades

There are two primary scenarios that might arise in your trading activities:

Scenarios 1: Overnight Holding

You can hold your positions overnight if you convert your trade from MIS to CNC for Equity and NRML for Derivatives and Commodities. To do this, ensure you have enough funds to cover 100% of the margins. If you don’t, you may need to square off a portion of your positions before attempting the conversion.

Scenarios 2: Additional Margin for Intraday Trading

When you have a long-term holding using NRML and suddenly need more margin for intraday trading, you will need to convert your position to MIS. This can be done by ensuring you have sufficient funds to cover the additional margins required for the intraday trading activity.

For any questions or clarifications on these scenarios, feel free to consult with Zerodha’s customer support or visit their official website for more detailed information.

Key Takeaways:

Cash and carry trading is not an option for direct stock sales between individuals through Zerodha. Ensure you use the correct product types for your trading needs to avoid unintended margin calls or position closures. Understanding the implications of different product types is crucial for effective trading on platforms like Zerodha.