What is a Contract Note and How to Interpret It

Whenever you execute an order in the equity or derivatives market, you receive something that is called a contract note. But have you ever wondered what a contract note is and its purpose? In this article, we will help you understand what a contract note is and why this legal document is unlike the receipts you get after purchasing something online.

A contract note is a crucial document provided by brokers to their clients after the execution of trades in equity or derivative markets – in this case, the client is you. It summarises important details about all the transactions you execute during a trading session on either NSE or BSE and protects you from any disputes or frauds. In simple words, a contract note is proof of all the trades you have executed and serves as legal evidence in case any dispute arises between you and the broker.

On a contract note, you can typically see what time a trade was executed, what security was bought or sold, the profit or loss realised, the quantity of securities traded, and so on. If you have found a contract note too complex to interpret, let us help you understand all the details contained in a contract note in this article.

A contract note is typically not accessible to just about anyone. Most contract notes sent to your email by trading platforms are password-protected by default. In order to unlock it, you will usually have to enter your PAN number in capital letters.

When you open your contract note, you will see a lot of information in a tabular format. This information includes the following items.

Order number

Each trade is associated with a unique order number, which enables you to track that specific trade easily. These numbers help reconcile the transaction with the stock exchange and serve as a reference in case of any issues.

Order and trade time

The order tells you when the order for a trade was placed, and the trade time indicates when the order was executed. These two times are not always the same. They vary especially when limit orders are involved.

Security/contract description

This section tells you the specific stock or security that was involved in a trade. The contract provides an identification code for the stock, such as its ISIN.

Buy or sell (B/S)

This column distinguishes between buy and sell transactions. ‘B’ represents purchases, while ‘S’ indicates sales.

Quantity

The quantity reflects the number of units of a particular security that was traded in an order. Quantities for sell orders are often represented as negative numbers.

Gross rate/unit and net rate/unit

This shows the price at which each unit of stock was traded. The net rate per unit is usually the same as the gross rate for equity trades.

Closing rate/unit

This value is specific to futures contracts and derivatives, where the closing rate represents the price point at which a futures contract was marked to market at the end of that trading session.

Net total (before levies)

This column indicates the total amount that needs to be paid or received before taking into consideration brokerage fees, taxes, and other levies.

Brokerage charges

The contract will also include a summary of financial charges like brokerage fees. Brokers will charge you a fee for executing trades. This fee is typically a small percentage of the total transaction value, or a flat fee, and it helps you understand the cost of trading.

• If you find a mistake in your contract note, contact your broker as soon as possible to address and rectify the issue.
• A contract note is a crucial legal document that records the details of trades, making accuracy essential for legal and financial reasons.
• Understand that a contract note details trades executed on a specific day, while a ledger statement provides an ongoing balance of your trading account.
• Ensuring all details in your contract note are correct helps prevent future disputes and ensures accurate record-keeping.

The contract note is not just a document that summarises your trades. It plays a critical role in maintaining transparency and accountability in the trading ecosystem. Here are some key functions that a contract note serves:

1. Legal documentation: The contract note is an official record of all transactions you carry out through a broker. If any discrepancies or disputes arise, it functions as a legal document that can be referred to for resolving these disputes.
2. Tax filing: Traders will need to refer to their contract notes when filing their taxes. These will be especially important to calculate capital gains and losses because the note provides accurate details of the prices at which securities were bought or sold.
3. Dispute resolution: Lastly, in events such as non-delivery of stocks or incorrect execution of trades, the contract note is a reliable document that you can present to the broker or regulatory authorities to rectify your problem.

To sum it up, a contract note is an important document that provides a detailed account of all trades executed in a trading session. It shows vital information like order numbers, trade times, quantities, prices, and financial charges associated with a trade. It ensures transparency in the trading process and acts as a legal safeguard for traders.

Contract notes are not issued for mutual funds transactions. Instead, they are issued only for equity and F&O trading. Want to start investing in mutual funds from top fund houses? The Bajaj Finserv Platform lets you choose mutual fund schemes by comparing 1,000+ mutual funds! You can also use an SIP calculator if you wish to take the SIP route.