When you make a purchase of both Yes and No at any particular event, you’ll see something like this:
So what is Order Merging?
When you are trading on Tradex, the basic understanding is that a pair of yes and no is always ₹100. So, when you sell a pair of yes and no, you’ll always get ₹100.
If you’re lucky, or rather if you’re smart enough, there is a way to always be in profit. If you can buy the contracts of Yes & No at a sum price of less than ₹100, then your profit will be 100 - the total cost of a Yes and a No share.
For example, you bought a share of Yes at ₹30 and a share of No at ₹30 as well. Once you merge, your total profit will be ₹40.
And vice versa. If their sum is more than ₹100, you’re at a loss.
The catch is to buy the same number of shares. If not, once you merge, there’ll be leftover shares.
Now, to answer the big question of why do we have a Merge functionality or why would anyone use it?
Why use Merge Order?
There are 3 reasons.
- Let’s say I have a share of Yes and a share of No. Let’s also assume that my investment hasn’t changed and I’m neither in profit nor loss. It’s the perfect time for to merge the order. For every equal number of yes and no shares, I’ll get ₹100. This also means that I won't have to wait to sell them individually when they increase and incorporate slippage.
- Secondly, sometimes we invest in an event but after a while are not sure about the outcome. If you’ve found another event that you think has potential and you want more cash available, then Merge is for you as well. Buy opposite shares, merge, sell, and balance out your opportunity cost with another event.
- Finally, let’s say your total investment of yes and no is 90. There is a sure-shot profit of ₹10. At this point, if you see very high fluctuation in price, you can merge and sell immediately and book whatever profit you can get right now and move to another event.
Ideally, Merge is the best tool for minimising risk and book profits. In stock markets, if you think the price will go up, you initiate a long trade. If you think the price is going to go down, you go for a short position. On Tradex, it is about Yes and No. Instead of short selling, you’ll buy the opposite side.
But should you Merge your orders?
It depends on the type of trader you are. Are you a high risk and high returns type of trader? Then probably Merge isn’t for you. The probability of high returns is low with the Merge function (due to volatility in the market). However, if you want to buy positions on both sides or if you want to mitigate your risks, then have a go at Merge.
It’s about balancing your risk, rather than making more money.