What is a Contract Note and How to interpret it?

What is a Contract Note and How to interpret it? 

A contract note is the legal document that presents the summary of all the trades executed during the trading day.

Traders can view their transactions, time, trade, profit, loss summary, charges, taxes summary, and much more from this one piece of document. A contract note is your legal shield from fraud and provides you with every sort of information you need about your trades.

Now you know why not to mark this email as spam just because you feel it is repetitive every day after your trade. 

At first, a contract note may appear as a complex document; however, it’s relatively simple to interpret. Let us help you break it down.

·        Contents of a contract note

Before we get around to what’s inside a contract note, note that when you try to open the contract note delivered to you by email, you will need a password. The document is password-protected to trade in stocks or derivatives. Given the sensitive nature of this document, it makes sense to protect it with a password.

1.      Order No.: For each successfully executed order, a unique order number is assigned by the exchange. This number will be different for each of the orders you execute on the platform. 

2.      Order Time:  You can find the exact time when your order was placed on the exchange. 

3.      Trade Time: Here, you will get to know the exact time when the order was ‘executed’ on the exchange. Order time and trade time can vary. For example, a limit order will only get executed when the underlying conditions for the order are met. 

4.      Security/Contract Description: Find the name of the stock you traded. 

5.      Buy(B)/Sell(S): Stocks you bought will be represented by ‘B,’ and stocks sold will be represented by ‘S’ indicating the type of trade and transaction undertaken.

6.      Quantity: This represents the number of securities (in case of stocks) or number of lots traded (in case of derivatives). For sell orders, quantities will be represented in negative. 

7.      Gross rate/unit: Here, you will find the price at which your order was executed. That is, the column represents orders that are executed at the market price of the stock. 

8.      Net rate/unit: This is usually the same as gross rate/unit. In case of brought forward, carry forward futures transactions and expired options contracts, there is only net rate/unit. 

9.      Closing rate/unit: This is available only for futures contracts. It represents the price at which the futures contracts you chose to trade closed at the end of the market session.  The contract note will show this value, as futures contract’s MTM settlement is on a daily basis.

10.   Net total before levies: This column details the amount you need to pay or are liable to receive for all the trades you undertook in your Demat through the broker. However, this figure does not take into account the statutory fees such as brokerage and taxes that are charged separately. 

If this amount is negative, you will have to pay this amount as it’s due from your side. Should this amount be positive, broker will pay it to you. It will be credited to your trading account. 

Beneath this vertical table, you will find a horizontal row containing the description of your buy and sell quantities. Your buy summary is generally on the left side while the sell summary appears on the right. 

The second half of the contract note covers all the monetary aspects, including net payable/receivable, taxes, brokerage, and STT.

11.   Pay in/pay out obligation: The amount indicated here will show debit and credit transactions. Note that, in case of debit, the transaction is denoted with a negative sign. 

The next after those accounts for regulatory fees, Stamp Duty, SEBI turnover fee, and Exchange Transaction Tax. 

In the next row, you will find the details of GST, i.e., IGST, or CGST and SGST. 

IGST is levied @ 18% while CGST and SGST are levied @ 9% each.

Finally, there is a row for “Net amount payable/receivable by the client.”

Here too, in case of debit transactions, the amount is denoted with a negative sign. Debit indicates the amount payable by you (the client) while credit is the amount receivable by you. 

Note here that a contract note doesn’t contain the details of DP charges and margin details; for DP charges, clients need to refer to their ledger statement. 

·        Why is a Contract Note important for you?

1.      A contract note is a summary of all the trades and transactions undertaken in the day.

2.      Contract note makes the trading experience transparent by giving the clients a point of reference to cross-check their trades and transactions. 

3.      Should you be wondering why you have received a (marginally) lower amount than the price you sold your stocks at, or why you are being asked to pay a higher amount for your purchase than the trading price of the stock, you will find the details of this on the Contract note.

4.      All the brokerage charges and taxes deducted can be found in one place. 

5.      Contract note serves as a legal document in case of any dispute due to non-delivery of stocks. 

6.      While calculating capital gains, users can refer to contract notes to know the exact amount received. 

Source: Groww.in