how trading is done in india, its systems and types of markets and settlement system in india

1. TRADING IN THE STOCK
MARKET

2. DEFINITION OF STOCK EXCHANGE
The securities regulation act of 1956 defined stock
exchange as “an association , organization , or a individual
which is established for the purpose of assisting , regulating
, and controlling business in buying ,selling and dealing in
securities.”
Stock exchange is an organized and regulated financial
market also known as secondary market.

3. TRADING MEANING
Trade is a basic economic concept involving the members,
brokers execute their buy or sell orders on behalf of their clients
and in the second phase, the securities and cash are exchanged
in the hope of making a profit.

4. TRADING SYSTEM
The system of trading in stock exchanges for many years was known
as floor trading.
In the new electronic stock exchanges which have fully automated
computerized mode of trading, floor trading is replaced with a new
system of trading known as screen-based trading.
Screen-based trading are two types:
1. Quote driven system 2. Order driven system
•Under the quote driven system the marketmaker, who is a dealer in
particular security, input two way quotes into the system that is bid
price and offer price .
• Under the order driven system clients place their buy and sell orders
with the broker

5. GENUINE INVESTMENT VS
SPECULATION
Basis Investment Speculation
Definition Sacrificing present value with hope to
derive future value
Buying assets with an
expectation of profit with no
safety for principal
Return Consistent High returns
Risk Limited risk High risk
Time period Long term Short term
Influencing
factors
Safety, liquidity, stability Market behavior, institution,
beliefs

7. SPECULATION
Speculator are traders who intend to make high returns within a
short time, making short term profit from the fluctuation in
prices of securities in the stock market
Types of Speculators-
Traders engaged in speculative activity in the stock market are
described by different names based on the types of activity they
generally engage in.
They are Bulls, Bears, Stag and Lame duck.

8. BULL SPECULATION
A trader who expects a rise in price of securities
is known as a bull.
 He takes a long position with respect to
securities.
He buys the securities to sell them at future date
at the higher price
The bulls will able to make profit only if the
prices rise as anticipate otherwise they will suffer
losses.
When the prices of securities are generally rising
in the market the market is said to be in a bullish
phase.

9. BEAR SPECULATIONA bear is a speculator who expects a decline in the prices of
securities.
He takes a short position on securities by engaging in short sales.
He attempts to cover of his short position by buying the securities at
lower prices when prices decline.
The bear will suffer a loss if the prices of securities rise after he
takes a short position on securities, when there is a general decline
in prices of securities in the stock market, the market is said to be
bearish.

10. LAME DUCK SPECULATION
He is speculator when the bear operator
finds it difficult to deliver the securities to
the consumer of rise in prices of securities
subsequent to short sale on a particular day
as agreed upon
He struggles as a lame duck in fulfilling his
commitment.

11. STAG SPECULATION
A stag is a trader who applies for shares in the
new issues market just like a genuine investor.
A stag is like the bull and expects a rise in the
prices of securities that he has applied for.
He anticipates that when the new shares are
listed in the stock exchange for trading , they
would be quoted at a premium, that is, above
their issue price.
As soon as the Stag receives the allotment of
shares, he would sell them at the stock
exchange at the higher price and make a profit
.
A stag is said to be a premium hunter

12. TRADING PROCEDURE IN THE
STOCK EXCHANGE
1. Selection of a broker:
The buying and selling of securities can only be done through SEBI
registered brokers who are members of the Stock Exchange.
The broker can be an individual, partnership firms.
So the first step is to select a broker who will buy/sell securities on
behalf of the investor.

13. STEP 2
Opening Demat Account with Depository:
Demat (Dematerialized) account refer 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.

14. STEP 3
Placing the Order:
•After opening the Demat Account, the investor can place the order.
The order can be placed to the broker either personally or through
phone, email, etc.
•Investor must place the order very clearly specifying the range of
price at which securities can be bought or sold.
e.g. “Buy 100 equity shares of Reliance for not more than Rs 500 per
share.” 4. 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 (commission) charged by
him. Contract note is signed by the broker.

15. STEP 4
Settlement-
•This means actual transfer of securities.
•This is the last stage in the trading of securities done by the
broker on behalf of their clients.
•There can be two types of settlement.
a) On the spot settlement: It means settlement is done
immediately and on spot settlement follows. This means any
trade taking place on Monday gets settled by Wednesday.
(b) Forward settlement: It means settlement will take place on
some future date. All trading in stock exchanges takes place
between 9.15 am and 3.30 pm. Monday to Friday