Equity market trading basics

13
MYMONEYGURUKUL.COM Equity Market Trading Basics A brief overview of equity trading in India Level- Novice

description

Know about trading account, share market basics and Structure of equity market in India. Very useful for novice investors, who want a quick idea about equity market and trading basics. Very simple but effective presentation. You can view more presentations and articles like this in mymoneygurukul.com.

Transcript of Equity market trading basics

Page 1: Equity market trading basics

MYMONEYGURUKUL.COM

Equity Market Trading Basics A brief overview of equity trading in India

Level- Novice

Page 2: Equity market trading basics

Presentation Summary

This presentation will help you to know about equity trading basics in India.

Discussion topics:

Stock market structure in India.

Basic criteria to open an account for trading.

DEMAT with broker or somewhere

Trading fundamentals

Contract Note

Trading cycle and DEMAT account

Fees and Taxes for trading

Page 3: Equity market trading basics

Stock Market Structure

Company (Like ITC Ltd)

Primary Market

Issue Shares in IPOCollect Capital

From Investors

Investors

Invest Money

Get Share Certificate

Stock Exchange (Like NSE)

Listed in Stock Exchange

Brokers (Members)

Brokers execute orders for their Client in Stock Exchange

Investor sell stock holding to get back money

Buyers

Buy stock from present owner

Regulated By SEBI

1

2 3

4

5

6

Page 4: Equity market trading basics

Stock Market Structure

1. Company collects money (capital) from primary market by Initial Public Offering (IPO)

2. Investors, like us, buy those shares by paying offer price

3. Company lists their name in a stock exchange, to give investors proper opportunity to buy or sell shares they own.

4. A broker, who is a member of stock exchange, can only buy or sell stocks on behalf of their client

5. An investor who wants to liquidate his investment can do so by a broker in stock exchange

6. A prospective buyer who missed the IPO can buy shares through a broker in stock exchange (if seller is available)

7. Entire capital market process is highly regulated by SEBI

Page 5: Equity market trading basics

Important Points

1. To trade, you need a broker

2. If you want to purchase stock of any company, you have to find out the listing stock exchange of that company and a broker of that stock exchange.

3. You can buy a share from primary market ( a network of merchant bankers, banks and other agencies)* in IPO but you can sell that share only in stock exchange (company may buy back their share but that depends upon Board of Directors and financial condition of that company)

4. You can deal your own(off-market) if you able to find out someone who has the same desire.

5. We can keep our purchased share in paper form or if we want to keep it safe like money in bank, we can do so by opening a DEMAT account.

6. DEMAT account is mandatory if you want to buy or sell share in stock exchange.

Page 6: Equity market trading basics

Basic Criteria of Trading Account

1. To trade, you need a broker

2. If you approach a broker, he will give you a big document call application form to open a trading account for stock trading.

3. If you don’t have any DEMAT account, you need to open that also.

4. If you have shares in paper format, you need to convert them in electronics format in a DEMAT account to start trade.

5. The broker will generate a client code for you after accepting your application.

6. Once your account is ready, you can start trade.

7. Requirement for trading account

1. PAN Card (Mandatory) , 2. Bank Account (Mandatory) 3. Address Proof (Mandatory) 4. Photograph (Mandatory) 5. DEMAT account (mandatory but you can open it with trading account)

Page 7: Equity market trading basics

DEMAT with Broker or Somewhere

1. There is no risk of opening a DEMAT account (you open a DEMAT account in NSDL or CSDL but by a member like your broker or bank) with a trading account.

2. But if you have a long term buy and hold strategy, you can open DEMAT account somewhere to avoid lure or panic sales.

3. If you are a regular or short term trader, it is always wise to open DEMAT with your broker to avoid process harassment.

Page 8: Equity market trading basics

Trading Fundamental

1. Fortunately, we have automated order matching system to trade, in place of old pit based system of shouting.

2. You can see price, order book and volume of trade from a computer called trading terminal to place an order. The computer is networked with a server with other computers.

3. When you place a buy or sell order, the system automatically match the order and complete the trading.

4. You can install the trading terminal in your home pc, if you have internet and experience with the system (of course your broker should allowed that one). Many brokers offer easy web based trading platform for their client.

5. When you place an order, the system generate an order id for you, You can track your order by that order id. You can cancel or modify an unexecuted order.

6. Once your order get executed, system confirm your execution and generate an transaction id for that successful order.

Page 9: Equity market trading basics

Contract Note

1. For every successful trading, your broker is bound to give you a contract note. A contract note is a summarized statement of your executed order.

2. You should collect and keep this contract note for your record.

3. This is only reference document of your trade execution.

4. Contract note provides information about

1. Order Number and time of order

2. Trade number and time of trade

3. Total Quantity of trade

4. Price of trade

5. Brokerage or commission of your broker

6. Taxes and other charges

7. Your net pay-in or payout

Page 10: Equity market trading basics

Trading Cycle

1. After end of a trading cycle, the buyer of the stock receive the stock and seller receive money.

2. The most common trading cycle is T+2, i.e. Trading day plus next two days for trade settlement.

3. So, if you are a buyer, you need to pay the purchase value next day of trading day to give your broker enough time to complete the process

4. And, if you are a seller, you need to submit signed payout slip of that stock (Like a cheque in bank) to broker at the same time.

5. Do not want to discuss consequence of failure to do so.

6. Apart from your charges in contract note, you need to pay pay-in (buying(for most cases free)) and Payout(selling) charges of DEMAT.

Page 11: Equity market trading basics

Charges and Taxes for Trading

1. You need to bear following charges and taxes for buying and selling a stock from stock exchange)

1. Brokerage ( a commission for your broker, you can bargain this before opening an account)

2. Service Tax @12.36% (Current) on Brokerage

3. Securities Transaction Tax (STT) at 0.1% on turnover value

4. SEBI turnover charges at 0.0001% on turnover.

5. Transaction Charges will be charged @ 0.0031% for NSE and 0.0035% for BSE on turnover

6. Applicable State wise Stamp Duty

7. Pay-in and Payout charges of your DEMAT account (depends upon broker or your Depository Participant)

Page 12: Equity market trading basics

Your Feedback

Your feedback and suggestion is important for us. Please give your feedback at [email protected]

To know more about personal finance, stock and trading please visit

http://mymoneygurukul.com/

Page 13: Equity market trading basics

Next Presentation

Investing in Stocks