Process of Investing in Secondary market: Now that you have opened your Demat and trading account you are ready to start your stock market investing process.
Process of Investing in Secondary market
Below we have mentioned the basic steps followed while buying and selling shares.
1. Place an order with your stock broker to buy shares on your behalf. You can do this by calling your broker on any phone, via a mobile app, or through online trading software.
2. After your order gets executed, at the end of the day, the broker issues you a contract note which gives details of the value of shares purchased, brokerage charges, STT, and other levies and taxes.
3. You make payment to your broker.
4. Broker collects your shares and makes payment on your behalf via the settlement process.
5. Broker credits the shares collected on your behalf to
your Demat account.
1. Place an order with your stock broker to sell shares on your behalf. You can do this by calling your broker, via an app, or through online trading software. mobile
2. After your order gets executed, at the end of the day, the broker issues you a contract note which gives details of the value of shares sold, brokerage charges, STT, and other levies and taxes.
3. You need to transfer shares that you sold from your Demat account to your broker’s pool account.
4. Broker delivers your shares and collects payment on your behalf via the settlement process. your bank account.
5. Broker credits the payment collected on your behalf to
Ways of Placing Orders:
Forget the days when prices were negotiated by buyers and sellers screaming on the trading floor, now even the days when one had to visit the broker’s office or call him to place orders are gone.
With the advancement of technology today various ways are available in which one can place orders.
1. Placing Orders via Phone
2. Placing Orders Online (Terminal Based)
3. Placing Orders via Mobile Apps
Types of Orders:
• Market Order –
The fastest, easiest, and most common type of order is a Market Order. If you want to purchase or sell any particular share quickly, you pay the current market price. But here you are paying a little bit more for the speed and certainty.
• Limit Order –
There is another type of order that is a little more complicated but that allows you to negotiate a better price i.e., the limit order. The advantage of a limit order is that you can decide for yourself the price at which you want to buy or sell any share. The disadvantage is that a limited order.
often takes more time to fill. In fact, it may never be filled, especially if the price you picked is too low or too high.
For example, ONGC is currently trading at Rs. 100 per share and you feel that during the day the price will come down and you place a limit order to buy shares of ONGC at Rs. 95. Now if the price of ONGC falls to Rs. 95 or below that then only your order will get executed and you will get those shares for Rs. 95. However, if the price of ONGC does not fall to Rs. 95 then your limit order will not get executed.
Similarly, let us take the example of shares of SBI which are trading at Rs. 300 per share. You wish to sell shares of SBI but you feel that you can get a better price during the day and you place a limit order to sell your shares of SBI at Rs. 310. Now if the price of SBI rises to Rs. 310 or above, then only your order will get executed and your shares will get sold for Rs. 310. However, if the price of SBI does not reach the level of Rs. 310 then your limit order will not be executed.
- Market orders are often recommended when your main goal is to buy or sell shares immediately.
- Limit orders are recommended in cases where shares have low volume, high volatility, or a wide difference between the bid and ask price.
A contract note is the legal record of any transaction carried out on a stock exchange through a stockbroker. It serves as the confirmation of any buy or sells transaction done by your broker on your behalf on a stock exchange on a particular day and at a particular time.
A contract note contains details of the transaction done like the Order Number, Trade Number, Trade Price, Trade Execution Date and Time, Name of Traded Security, Traded Quality, Traded Price, Brokerage, Taxes, and Other Charles Levied, Settlement Number, etc.
Clearing & Settlement Mechanism:
In every trade of securities, there is a buyer and a seller.
After the trade, the buyer is obligated to take the delivery of the shares he has bought and make payments for the same while the seller of the shares is obligated to deliver the shares he has sold and collect the payment for the same. This process is known as the Clearing and Settlement Mechanism.
In simple language, this process refers to the pay-in and pay-out of funds and securities.
This process is handled by the respective brokers via the Clearing Corporation or Clearing House of the Stock Exchange.
|Stock Exchange||Clearing Corporation/ Clearing House|
|Bombay Stock Exchange|
|BOI Shareholding Ltd|
|National Stock Exchange|
of India (NSE)
|NSE Clearing Limited (NSE|
Clearing) earlier known as
National Securities Clearing
Exchange of India (MSE)
Corporation of India Ltd
Indian markets follow a T+2 settlement cycle i.e., the pay-in and pay-out of funds and securities are completed on the second working day from the trade date. So the clearing and settlement of the trade executed on Monday take place on Wednesday.
So if you bought shares on Monday then you need to make payment to your broker by Tuesday afternoon so that he can make the payment on your behalf on Wednesday to the Clearing Corporation / Clearing House and gets the delivery of the shares you bought. Your broker then transferred these shares to your Demat account within one working day.
Similarly, if you have sold shares on Monday then you need to give delivery instruction slip for sold shares to your DP by Tuesday afternoon so that they are transferred to your brokers’ pool account.
This allows your broker can deliver those shares on your behalf on Wednesday to the Clearing Corporation / Clearing House and receives the payment for the same on your behalf. Now your broker pays you this amount in form of a cheque or NEFT in your bank account within one working day.
- Why Invest In Equities? | Best Equity Investments 2022
- What are marketable securities? (2022)
- What type of risk is involved with the stock market? – 2o22
- How To Invest Basics – Best Beginner’s Guide 2022
- What are Equity Investments
- What is a secondary market?
- How to start trading stocks?
- How to invest in IPO?
1 thought on “Process of Investing In Secondary Market – Ocweb (2023)”
Comments are closed.