Get a Good Deal: Go to the Market Yourself

If you get the inkling that your human broker is not, for whatever reason, getting you the best prices for your securities purchases or sales, and you have the time and inclination to save some rupees, try a technology interface. Many brokers have online systems for retail users to place orders directly into the market.

Here are some general tips on making sure you get a reasonable price for your transactions on the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE; note: this is not for active traders, just for investors who want to make sure they are not being fleeced):

  • Get comfortable with your broker’s online trading system – perhaps start with tiny amounts to see how it works
  • The large companies are liquid, so you should have no trouble with those; these tips are more relevant for the less liquid scrips
  • Be careful and double check all your inputs – an extra zero or incorrect decimal point will cause a lot of trouble
  • Keep an eye on both NSE and BSE screens
  • Always place a limit order
  • Don’t buy or sell more than 10% of the total trade volume for the day
  • Don’t place an order when the spread is more than 1% of the mid-price (spread = best sell offer – best buy bid; mid-price = (best sell offer + best buy bid) / 2)
  • For buy orders, your limit price should be within a +/-0.5% band of the best bid price; cancel the order if the limit price falls outside this band
  • For sell orders, your limit price should be within a +/-0.5% band of the best offer price; cancel the order if the limit price falls outside this band
  • For larger orders, always place an “iceberg” order i.e. disclose only a fraction of your order (the order window will have an input field for this)
  • Restrict the disclosed order quantity to the maximum order quantity visible on the limit order book for any given price (the best five discrete sell offer and buy bid prices and respective order quantities are displayed)
  • The last hour of trading is usually the busiest, so you should be alert between 2:30 and 3:30pm
  • Don’t get impatient even if it takes a few days or weeks to buy/sell all the securities

I have chosen arbitrary numbers as guideposts based on my experience so you may want to tweak them depending on your talents for bargain hunting.

An Example of an Order Book

order bookBest Bid = 84.3; Best Offer = 85.1; Spread = 0.8; Mid-price = 84.7