NRML Full Form & It's Role in Indian Stock Trading

NRML Full Form & It's Role in Indian Stock Trading

NRML which also stands for “Normal Margin Order” is a type of order used in trading, primarily used in the futures and options (F&O) segment. In NRML, traders can buy or sell futures and options contracts with the provision of carrying forward their trades to the next day, subject to certain conditions and margin requirements. This means that the positions are not squared off on the same trading day, unlike intraday trading, where all positions are closed before the market closes.

NRML orders are suitable for traders and investors who wish to hold their trades for more than one day. They provide flexibility in terms of holding positions overnight or for several days or weeks, depending on the trader's strategy and market conditions. However, holding positions overnight also exposes traders to overnight market risks and other factors that may affect the price of the underlying asset.

How Do NRML Orders Work?

NRML orders are a type of order used for trading futures and options contracts on the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE). Here is how NRML orders work:

  • When placing an NRML order, traders are required to maintain a certain amount of margin in their trading account. This margin amount differs depending on the contract being traded and is determined by the stock exchange.
  • NRML orders enable traders to take leverage, meaning they can control a larger position size with a smaller amount of capital. However, this leverage also increases the risk, as losses can exceed the initial margin deposited.
  • NRML orders allow traders to hold their positions overnight or even for multiple days, weeks, or months, depending on their trading strategy and market outlook. 
  • Traders may incur brokerage fees, exchange transaction charges, and regulatory fees when placing NRML orders.
  • Unlike intraday trading where positions are squared off before the end of the trading day, NRML positions can be held until the trader decides to close them or until the contract expires.
  • Since NRML orders include holding positions for longer periods, traders need to deploy risk management strategies to protect their capital, such as setting stop-loss orders to limit possible losses.

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Table of Content

  1. How Do NRML Orders Work?
  2. How to place an NRML Buy Order?
  3. How To Convert MIS To NRML
  4. What is Trading in an NRML Order? 
  5. What are the advantages of NRML order?

How to place an NRML Buy Order?

Below are the steps to place an NRML Buy Order:

Log In: Log in to your BlinkX  trading account. Ensure that you have the necessary funds deposited/available in your trading account to cover the purchase.

Select the Market: Choose the exchange market from NSE or BSE or any other trading venue supported by your broker.

Invest in Financial Instrument: Select the financial instrument you want to buy. This could be a stock, commodity, or any other tradable asset.

Select Order Type: Choose the order type as NRML from the options provided. NRML orders are typically used for overnight positions in the futures and options segment of the stock market.

Specify Quantity: Enter the quantity of the asset you wish to purchase. Make sure you are aware of the lot size and any other related trading parameters specific to the financial instrument you are trading.

Enter Price: Depending on the market conditions and your strategy, you may choose to enter a specific price at which you want your order to be executed. If you are not certain about the price, you can choose to place a market order, which will execute at the best available price in the market.

Add Funds: To add funds to your trading account, you typically have several options, including bank transfers, online payments, etc. A trading platform such as BlinkX  has a designated section where you can initiate fund transfers or deposits. 

Placing the NRML Buy Order: Once you have sufficient funds in your trading account to cover the required margin, you can proceed to place the NRML buy order.

How To Convert MIS To NRML

Converting positions from Margin Intraday Square-off (MIS) to Normal (NRML) in trading typically involves two steps: 

  • Closing the MIS Position: First, you need to close your existing MIS position. If it is a buy position, you need to sell the same quantity of the asset, and if it is a sell position, you need to buy back the same quantity.
  • Reopen the Position in NRML: After closing the MIS position, you can reopen the position in NRML mode by placing a fresh order with the NRML product type. Ensure that you specify all the relevant details like quantity, price, and any other parameters required.

What is Trading in an NRML Order? 

When you place an NRML order, you are essentially trading in the normal segment of the market, which means you have to pay the full margin required for the trade upfront. This margin is a percentage of the contract value, determined by the exchange, and it acts as a security deposit to cover any potential losses.

In contrast, there is also an intraday trading segment called Margin Intraday Square Off (MIS) where traders can buy and sell within the same trading session, and the margin required is lower compared to NRML orders. MIS orders automatically get squared off by the system at the end of the trading session. So, trading in an NRML order involves taking positions to hold them for more than one trading session and paying the full margin upfront. 

What are the advantages of NRML order?

Below are the top 5 advantages of NRML order: 

Extended Timeframe: NRML orders have a longer time frame compared to other types of orders like Margin Intraday Square-off (MIS). This allows traders to hold their positions overnight or for multiple days, which can be beneficial for strategies that require a longer time horizon.

Lower Margin Requirement: NRML orders usually require lower margins compared to MIS orders. This makes it suitable for traders who want to hold positions for a longer duration without the need for high intraday margins.

Potential for Higher Returns: By holding positions for a longer duration, traders may have the opportunity to capture larger price movements and potentially gain higher returns as compared to intraday trading. This is particularly beneficial if the market moves in the anticipated direction for a longer period.

Diversification of Trading Strategies: NRML orders enable traders to diversify their trading strategies beyond intraday trading. They can explore swing trading or positional trading strategies that capitalize on medium to long-term price movements in the market.

Avoidance of Intraday Volatility: NRML orders aid traders evade the volatility which is often experienced during intraday trading. By holding positions for a longer duration, traders can avoid being stopped by short-term price fluctuations.

Conclusion
NRML orders represent a keystone of trading strategies in financial markets, offering investors a versatile and adaptable tool for executing trades over extended periods. These orders provide a vital mechanism for managing risk and optimizing investment decisions by enabling traders to enter positions with a longer-term outlook, without the constraints of intraday trading. 

By offering flexibility in terms of timing and execution, NRML orders enable investors to implement complex trading strategies, including hedging and portfolio diversification, with precision and efficiency. Moreover, NRML orders contribute to market stability and liquidity by enabling systematic trading activities, thereby enhancing overall market integrity. NRML orders serve as a cornerstone in the toolkit of traders and investors, empowering them to navigate the complexities of financial markets with confidence and effectiveness.

FAQs on NRML

NRML positions can be held for an extended duration, typically from one day to multiple days, or even weeks or months depending on the trader's strategy and the exchange's regulations. 

Certainly. NRML and MIS trading differ in their margin requirements and trading durations, with NRML allowing overnight positions while MIS requires intraday square-off.

The best choice between MIS and NRML depends on your trading strategy, with MIS suited for intraday trading while NRML is more suitable for overnight positions.

NRML trading is a facility that enables investors to buy and hold stocks overnight, thereby taking advantage of potential price movements over multiple trading sessions. When engaging in NRML trading, investors are required to maintain the full margin requirements as specified by the exchange, which typically includes a percentage of the total value of the position being held. These margin requirements vary depending on factors such as the volatility and liquidity of the securities being traded. 

NRML trading is suitable for investors who are willing to bear the overnight risks associated with market fluctuations. At the end of each trading day, the exchange calculates the mark-to-market (MTM) value of the investor's position based on the closing prices of the securities, and any gains or losses are adjusted accordingly in the investor's trading account.

NRML is a type of trading order used in the Indian stock market for carrying out delivery-based transactions. You should use NRML trading when you want to hold your stocks for more than one day. NRML orders are suitable for investors and traders who are looking for mid to long-term investments rather than short-term gains.

Certainly! NRML trading involves risks such as market volatility, where prices can fluctuate rapidly, possibly leading to financial losses. Moreover, traders must manage their margin requirements carefully to avoid margin calls, which can occur, if their account equity falls below a certain level.

You can execute NRML trades through authorized stock brokers or trading platforms.