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Unit - 3 Remaining Topics

The document discusses several topics related to trading securities on a stock exchange: 1. It outlines some common myths about investing in the stock market and explains the actual processes involved. 2. It then explains the key steps in trading securities - selecting a broker, opening a demat account, placing orders, order execution, and settlement. 3. Details are provided on opening a demat account, placing orders with a broker, the contract note issued after execution, and the settlement process.

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Dev Joshi
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21 views

Unit - 3 Remaining Topics

The document discusses several topics related to trading securities on a stock exchange: 1. It outlines some common myths about investing in the stock market and explains the actual processes involved. 2. It then explains the key steps in trading securities - selecting a broker, opening a demat account, placing orders, order execution, and settlement. 3. Details are provided on opening a demat account, placing orders with a broker, the contract note issued after execution, and the settlement process.

Uploaded by

Dev Joshi
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Unit - 3

Financial Market & Services


Myths related to investing in stock market

• Investing in stock market is like Gambling.


• You need huge amount of money to make money.
(Only rich people can make profit from this market)
• Investing on your own takes too much time.
• Investing is simple. Buy on less and sell on high.
• Investors who invest on their own are intellectually
gifted.
• Fallen shares Will Go Back Up, Eventually.
• Stock that goes up must come down.
Trading of securities on a stock exchange

• 1] Selecting a Broker or Sub-broker


• 2] Opening a Demat Account
• 3] Placing Orders
• 4] Execution of the Order
• 5] Settlement
Selecting a Broker or Sub-Broker
• When a person wishes to trade in the stock market, it
cannot do so in his/her individual capacity. The
transactions can only occur through a broker or a
sub-broker. So according to one’s requirement, a
broker must be appointed.
• Now such a broker can be an individual or a
partnership or a company or a financial institution
(like banks). They must be registered under SEBI.
Once such a broker is appointed you can buy/sell
shares on the stock exchange.
Opening a Demat Account

• Since the reforms, all securities are now in electronic


format. There are no issues of physical
shares/securities anymore. So an investor must open
a dematerialized account, i.e. a Demat account to
hold and trade in such electronic securities.
• So you or your broker will open a Demat account
with the depository participant. Currently, in India,
there are two depository participants, namely
Central Depository Services Ltd. (CDSL) and National
Depository Services Ltd. (NDSL).
Placing Orders

• And then the investor will actually place an order to buy


or sell shares. The order will be placed with his broker,
or the individual can transact online if the broker
provides such services. One thing of essential
importance is that the order /instructions should be very
clear. Example: Buy 100 shares of XYZ Co. for a price of
Rs. 140/- or less.
• Then the broker will act according to your transactions
and place an order for the shares at the price mentioned
or an even better price if available. The broker will issue
an order confirmation slip to the investor.
Execution of the Order

• Once the broker receives the order from the


investor, he executes it. Within 24 hours of this, the
broker must issue a Contract Note. This document
contains all the information about the transactions,
like the number of shares transacted, the price, date
and time of the transaction, brokerage amount, etc.
• Contract Note is an important document. In the case
of a legal dispute, it is evidence of the transaction. It
also contains the Unique Order Code assigned to it
by the stock exchange.
Settlement

• Here the actual securities are transferred from the buyer


to the seller. And the funds will also be transferred. Here
too the broker will deal with the transfer. There are two
types of settlements,
• On the Spot settlement: Here we exchange the funds
immediately and the settlement follows the T+2 pattern.
So a transaction occurring on Monday will be settled by
Wednesday (by the second working day)
• Forward Settlement: Simply means both parties have
decided the settlement will take place on some future
date.
Margin Requirements of Broker
• VAR Margin: The Value at Risk (VaR) is a
margin intended to cover the largest loss that
can be encountered on 99% of the days (99%
Value at Risk). For liquid stocks, the margin
covers one-day losses while for illiquid stocks,
it covers three-day losses to allow the
Exchange to liquidate the position over three
days.
MTM (Mark to Market Settlement)

• It is a kind of settlement that takes place on daily basis.


• At the end of every day, whatever is the loss, that will
be debited from the trading account of the investor,
and the profits will be credited to the trading account
of the investors.
• MTM settlement is done in forward/future/option
market.

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