Have you ever wondered about the feature Auctions in your Zerodha Bids tab? In this post, I will explain everything about Auctions in Zerodha and how you can participate in auction markets on Zerodha Kite.
What are Auctions in Zerodha?
The auction market opens at 2:00 PM and lasts 30 minutes for short-delivered shares already settled in the Demat account. For now, Zerodha doesn't allow orders to be placed in the BSE's auction market. Fresh sellers of short-delivered shares can sell them to buyers during these 30 minutes. However, it's essential to remember that there is a circuit limit of 20% from the previous close. Besides, you can't buy shares in the auction market since the exchange is the buyer.
What are Bids and Offers in Auctions in Zerodha?
To participate in auctions in Zerodha, you must be clear about the Bid and Offer. While Bid is the price a buyer is willing to pay for a share, Offer is the price a seller is willing to sell a share. Zerodha auctions will display five bids and five offers.
A bid is the highest price a ‘buyer' is willing to pay for a share. Offer is the lowest price a ‘seller' is willing to sell a share. After you click ‘Market Depth,' Zerodha will show the five highest buyer bids. And five offers from sellers. The seller with the lowest Offer will have a high chance of winning.
What is short delivery?
A short delivery occurs when a trader short-sells a stock but fails to buy it or close the short position because of illiquidity or stocks hitting the upper circuit. After a short delivery, the shares will be credited on T+2 days after an attempt to procure the short-delivered shares at an auction on T+1 days. If the exchange can't procure the shares in the auction, it will credit the cash to the user's Zerodha account based on the close-out price.
How are transactions in auctions in Zerodha settled?
The settlement takes T+1 days in the auction market. 80% of the funds will be transferred immediately, while the remaining 20% will be blocked as a delivery margin and will be made available on the next trading day.
How to do Auction Trading in Zerodha
For short delivery shares, you can do auction trading in Zerodha from 2:00 PM to 2:30 PM. It's also essential to remember that there is a 20% circuit limit from the previous close.
You can download a file between 12 PM and 2 PM from https://zerodha.com/auction to know the stocks and quantities that will be bought in the auction markets on a day.
Here are the steps you need to follow to participate in the auction market in Zerodha:
- To get started, you must log in to kite.zerodha.com or the Kite mobile app.
- Next, you must click on Bids.
- After that, you need to click on Auctions under Bids.
- Next, you need to hover over Share and click on Sell.
- Lastly, you must click on Sell at Auction, enter the quantity and the price, and hit the Sell button.
Auctions in Zerodha: A Note of Caution
If you are looking forward to auction trading on Zerodha, you must bear in mind that the liquidity is currently low in the auction market due to a lack of retail participation.
Proprietary brokers constitute most of the auction market participation for now. Zerodha has had situations wherein there were losses of up to 20% due to low liquidity.
Auctions in Zerodha FAQs
What are the benefits of participating in auction markets?
- Liquidate short positions caught in the upper circuit: If you're stuck in a short position due to a stock hitting the upper circuit, auctions offer a way to exit your position and avoid delivery obligations.
- Potentially buy shares at discounted prices: If you're interested in a specific stock, auctions can present buying opportunities at prices below the previous day's close due to the 20% circuit limit.
- Improve market efficiency: Auctions help ensure smooth settlement by facilitating the delivery of short-delivered shares, preventing potential defaults, and ensuring market stability.
How can I determine which stocks are eligible for auction on a particular day?
Zerodha provides a downloadable file daily between 12 PM and 2 PM at https://zerodha.com/auction, listing the stocks and quantities offered for auction that day. You can also access the auction market directly through the Zerodha Kite platform under the “Bids” section, followed by “Auctions.”
What is the difference between a Bid and an Offer in the auction market?
A bid is the highest price a buyer is willing to pay for a share in the auction, while an Offer is the lowest price a seller is willing to accept for a share in the auction. The auction matches buyers with the highest bids and sellers with the lowest offers, determining the final auction price for each stock.
What are the steps to place an auction market order on Zerodha Kite?
- Log in to Kite or the Kite mobile app.
- Click on “Bids” and then “Auctions.”
- Hover over the desired stock and click “Sell.”
- Choose “Sell at auction.”
- Enter the quantity and price, then click “Sell.”
What happens if my auction order doesn't get filled?
It will not be filled if your order price doesn't match the final auction price determined by a bid/Offer balance. You can modify your order price and try again or wait for the next auction session.
What are the risks of participating in the auction market?
- Illiquidity: Auction markets may involve stocks with low trading volumes, making buying or selling at your desired price difficult. Your order might not get filled, requiring adjustments or missed opportunities.
- Price Volatility: Auction prices can fluctuate significantly due to limited participation and the 20% circuit limit. Be prepared for unexpected outcomes and potentially higher buying costs than regular market orders.
- Delivery Settlement: Although settlement happens in T+1, the initial 80% credit might not be immediately available for trading due to delivery margin requirements. This could limit your access to funds for other trades.
Can I buy shares in the auction market on Zerodha?
Currently, you can only sell short-delivered shares in the Zerodha auction market. The exchange acts as the buyer, facilitating delivery obligations for short positions. Consider regular market orders during trading hours if you want to buy specific stocks.
Conclusion
I have explained how auction trading works in Zerodha and the benefits. If you ever get caught up in a short selling position due to the stock hitting an upper circuit, you can liquidate your position in the auction market. After reading this article, you shouldn't face any difficulty in auction trading on Zerodha.
