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EDUindex News

PROCESS OF TRADING IN STOCK MARKET

Stock market has been in the news for quite a long time now. Almost everyone is interested in the buying and selling of the stock and earning profit out of it. The trading procedure, although, is a lengthy one. On top of that, investing in this market needs a lot of knowledge and skills. One must be experienced enough to anticipate the future of each company in the market and invest their money accordingly. Those who are not very well educated about the market may hire brokers for their investment.

These days, the trading process has been digitalized to minimize the risk of unhealthy trade practices and keep everyone’s money safe and secure. Let’s have a look at the whole procedure of trading and settlement in detail.

 

1.SELECTION OF BROKER

The first and foremost step is to select a broker who will buy and sell the securities on your behalf because according to the rules, only those who are registered under the Securities and Exchange Board of India (SEBI) can trade securities. These brokers can be anyone from an individual to a corporate body. There is a broker – client agreement and a client registration form that has to be signed to start the process. Also, the investor must submit the following details and documents:-

1.    PAN number

2.    Date of birth

3.    Address

4.    Educational qualification and occupation

5.    Residential status

6.    Bank account details

7.    Depository account details

8.    Client code number available in the client registration form

 

2.OPENING A DEMAT ACCOUNT

The investor is then required to open a demat account or a Beneficial Owner (BO) account with a Depository participant (DO) for holding and transferring the securities in the demat form. The depository is the organization or institution that holds the securities in an electronic form. In India, there are two depositories – National Securities Depositories Limited (NSDL) and Central Depository Services Limited (CDSL). Also, the investor is supposed to open a bank account for the cash transactions in the securities market.

 

3.PLACE THE ORDER

Then the investor places an order with his broker to buy or sell the securities. It should be clearly mentioned by the investor how much shares he wants to buy or sell so that there would be no confusion. Thereafter, an order confirmation slip is issued by the broker to the investor.

 

4.EXECUTING THE ORDER

The broker, after the placement of the order, will then connect to the main stock exchange online and he will match the shares and the best prices available for them. When the shares are available to be bough or someone is available to buy those from you, the broker is informed about it and the execution takes place electronically. The broker then issues a trade confirmation slip to the investor. After this, a contract note has been issued by the broker within 24 hours which is an important legal document as it helps to settle any disputes between the broker and the investor.

 

5.SETTLEMENT

Now the investor is supposed to deliver the shares he sold or pay the cash in case he bought. This should be done immediately after the contract note has been received or before the day when the broker will make the payment or deliver the shares.