Investors may carefully select their entry and exit points while preparing a trading strategy. An investor typically buys a stock when there is room for an upward movement. Buy meaning in the stock market is to initiate a position at the appropriate entry point. On the other hand, Hold meaning is to retain the current position in the markets. The buy and hold strategy is used extensively in passive investing, where investors buy and hold stocks for an extended duration, irrespective of market fluctuations.
However, there might be situations where shares are not delivered on time or may not be credited to the buyer’s account altogether. Such cases may result in a buy-in wherein the buyer has to repurchase the shares through an auction process. Let us dig deep into how buy-in works and what forced buy-in means.
The terms buy-in and forced buy-in might sound similar. However, the two have vastly different meanings. Let us understand in detail how a buy-in differs from a forced buy-in.
Characteristics | Buy-in | Forced Buy-in |
Why does it happen? | A buy-in is an event wherein investors must repurchase shares because either they did not receive delivery of the original shares or the purchased securities were not delivered timely. | A forced buy-in typically occurs to compensate for an open short position. There might also arise situations when the broker may not be able to borrow shares for the short position leading to a forced buy-in. |
How does it occur? | The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) follow a buy-in auction process where stock is auctioned to third parties by the exchange. | Sometimes the account holder may not be informed before a forced buy-in. The process may therefore work opposite from a forced liquidation or a forced sale. |
India’s major exchanges, BSE and NSE, follow the T+2 rolling settlement system, which takes two days to settle a particular day’s trading transactions. The exchange facilitates a buy-in stock auction in case of failure to deliver shares or short deliveries. The auction takes place on the T+2 day, and the auction settlement occurs on the following day, i.e., the T+3 working day.
Brokers participating in the auction submit their bids for the short position. In the case of successful auctions, the defaulting traders have to pay the auction price along with brokerage fees; in some cases, a penalty might also be levied. However, in case of an unsuccessful auction, a full refund is made to the trader who made the initial purchase. The defaulter is obligated to pay the higher amount of (a) The trading day’s highest current market price or (b) 20% more than the previous day’s closing market price for the security.
Share this article:
How to Opt for Mutual Fund Redemption
20 May, 2024 | 7 Min. read
HOAC Foods India Limited IPO: Price, Lot Size, Strengths and Risks
19 May, 2024 | 5 Min. read
Benefits, and Types of Debit Cards
19 May, 2024 | 5 Min. read
Unraveling the Legacy: History of Tata Group of Companies
19 May, 2024 | 5 Min. read
Best Ethanol Stocks In India
19 May, 2024 | 3 Min. read
AWFIS Space Solutions Limited IPO: Price, Lot Size, Strengths and Risks
19 May, 2024 | 5 Min. read
JSW Steel Q4 Results: Q4 Profit falls to ₹1,322 Crore
18 May, 2024 | 4 Min. read
Explore Best EV Stocks in India
18 May, 2024 | 4 Min. read
Rulka Electricals Limited IPO: Price, Lot Size, Strengths and Risks
18 May, 2024 | 5 Min. read
Top AI Stocks in India: Investing in the Future of Tech
18 May, 2024 | 4 Min. read
Most Volatile Stocks in India: How to Identify Them?
18 May, 2024 | 4 Min. read
Best Indicators For Intraday Trading
18 May, 2024 | 4 Min. read
Analysis to Become a Pro Investor
28 Dec, 2023 | 4 Min. read
Women In Real Estate Investing (Investree)
28 Dec, 2023 | 5 Min. read
How To Check Prudent Corporate Advisory IPO Allotment Status
27 Dec, 2023 | 3 Min. read
How To Boost Credit Score? – Steps to Improve Creditworthiness
27 Dec, 2023 | 4 Min. read
Advantages and Disadvantages of Opening Multiple Demat Accounts
26 Dec, 2023 | 4 Min. read
7th CPC LTC: Leave Travel Concession Rules for Central Government Employees
26 Dec, 2023 | 4 Min. read
7th Pay Commission: House Building Advance (HBA) Interest Rate FY 2023-24
26 Dec, 2023 | 5 Min. read
The Future of Trading: Exploring Bajaj Broking’s Demat Features
26 Dec, 2023 | 6 Min. read
7th Central Pay Commission Cpc Fitment Table
23 Dec, 2023 | 7 Min. read
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading