NISM VIII Trading Mechanism — Practice Questions
Practise how derivatives actually trade on an Indian exchange: contract specifications and expiry, order types, the trading system and its participants, position limits, and how contracts are adjusted for corporate actions.
64 questions on Trading Mechanism in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Contract specifications and expiry
- Order types and matching
- Position limits
- Corporate action adjustments
Free sample questions
1. When placing a limit buy order, _________
- A. the buyer does not set any price limit
- B. the buyer’s specified price is invisible to the market
- C. the buyer specifies a price below the prevailing market price ✅
- D. the buyer specifies a price above the prevailing market price
Answer: C — the buyer specifies a price below the prevailing market price
Why: In a limit buy order, the investor sets a maximum price they're willing to pay for a stock. The order is executed only if the market price falls to or below the specified limit price. Since the limit price is the maximum they're willing to pay, it's typically set below the current market price, waiting for the price to drop to that level or lower. For eg - If the current market price = Rs. 100 and you place a limit buy order at Rs. 95, the order will execute only if the price drops to Rs. 95 or below
💡 Limit BUY -> price set BELOW market; executes only if price falls to/at your limit (your MAX).
2. To whom is a high impact cost beneficial ?
- A. Only buyers
- B. Only sellers
- C. Neither buyers nor sellers ✅
- D. Only arbitrageurs
Answer: C — Neither buyers nor sellers
Why: Impact cost is the cost that the buyer or seller of stocks incur while executing a transaction due to prevailing liquidity conditions in that counter. A high impact cost will increase the purchasing price for the buyer and decrease the selling price for the seller. So a high impact cost is neither beneficial to the buyer nor the seller.
💡 High impact cost HURTS both -> raises buy price, lowers sell price; benefits NEITHER.
3. Mr. Ashu has bought 100 shares of ABC at Rs 980 per share. He expects the price to go up but wants to protect himself if price falls. He does not want to lose more than Rs. 1000 on this long position in ABC. What should Mr. Ashu do?
- A. Place a stop loss order for 100 shares of ABC at Rs 990 per share
- B. Place a stop loss order for 100 shares of ABC at Rs 970 per share ✅
- C. Place a limit buy order for 100 shares of ABC at Rs 990 per share
- D. Place a limit sell order for 100 shares of ABC at Rs 970 per share
Answer: B — Place a stop loss order for 100 shares of ABC at Rs 970 per share
Why: Mr. Ashu will lose Rs 1000 if the ABC share will fall by Rs 10 as he has 100 shares and a 10 rupee fall will lead to Rs 1000 loss (100x10). He has bought at Rs 980. So he will put the stop loss order at Rs 970 (980 - 10).
💡 Cap loss Rs1000 on 100 shares = Rs10/share -> stop-loss SELL at 980-10 = 970.
Practise all 64 Trading Mechanism questions
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