Question
Explain the trading procedure or steps on a stock exchange.
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Answer
Following are the steps included in a trading procedure:
- Selection of a Broker: The first step is to select a broker who will buy or sell securities on behalf of the investors because buying and selling of securities can only be done through SEBI registered brokers who are members of the Stock Exchange.
- Opening Demat Account with Depository: The second step in a trading procedure is to open a Demat account. Demat account refers to an account which an Indian citizen must open with the depository participant (banks or stock brokers) to trade in listed securities in electronic form.
- Placing the Order: The third step is placing the order. After opening the Demat account, the investor can place the order. The order can be placed to the broker either personally, through phone, e-mail etc.
- Executing the Order: The fourth step is executing the order. As per the instructions of the investor, the broker executes the order, i.e., he buys or sells the securities. Broker prepares a contract note for the order executed. The contract note contains the name and the price of securities, name of parties and brokerage charged by him and the contract note is signed by the broker.
- Settlement: This is the last stage in the trading of securities. This means actual transfer of securities done by the broker on behalf of their clients. This can be done in two forms:
- On the Spot Settlement: It means settlement is done immediately.
- Forward Settlement: It means settlement will take place on some future date.
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