METHOD OF TRADING IN A STOCK EXCHANGE
The stock exchange operations at floor level are highly technical in nature. Non-members are not permitted to enter in to the stock market. Hence various stages have to be completed in executing a transaction is a stock exchange these are:
Choice of a Broker
The prospective investor who waits to buy shares or the investor who waits to sell his shares cannot enter into the hall of the exchange and transact business so, 1st task in transacting business on a stock exchange is to choose a broker of repute or a banker.
Placement of Order
The next step is the placing of order for the purchase or sale of securities with the broker. The order is usually placed by telegraph, Telephone, letter, Fax etc or in person to avoid delay it is placed generally over the phone or personally came and place the order.
The orders may take any one of the following forms:-
At Best Order
It is an order which does not specify any price. It must be executed immediately at the best possible price. The client may also fix a time frame within which the order has to be executed.
Eg:- “Buy 100 essar steal at best”.
Limit Order
It is an order for the purchase or sale of securities at a fixed price. Specified by the client.
Eg:- “Sell 100 cipla Rs. 175”.
Immediate or Cancel Order
It is an order for the purchase or sale of securities immediately at the quoted price. If the order could not be executed at the quoted prices immediately. It should be treated as conceited.
Eg:- “Buy 100 cipla @ 175 immediate or cancel”
Discretionary Order
It is an order to buy or sell shares at what ever price the broker thinks reasonable. This is possible only when the client has complete faith on the broker.
Open Order
It is an order to buy or sell without fixing any time limit or price limit on the execution of the order. It is similar to discretionary order.
Splass Order
It is an order to sell as soon as the price falls up to a particular level or to buy when the price rises up to a specified level. This is mainly to protect the clients against a heavy full or rise in prices so this they may not suffer more than the pre-specified amount.
Execution of Order
Orders are executed in the trading ring of stock exchange on all working days from Monday to Friday and a special one hour session on Saturday. Trading out side the trading hours are called “Kerb Dealings”.
Preparation of Contract Note
The authorized clerks enter the particular of the business transacted during a particular day in the ‘Kacha Sauda Book’ from the rough Note-books at the close of that working day, from kacha souda books, they are transferred to ‘pucca sauda books’ which are maintained separately for the ready delivery contracts and forward delivery contracts. Then the broker/authorized clerk prepares a contract note. But now day having online trailing that for the not win to maintain kacha & pucca sauda books directly knowing about the contract note.
Settlement of Transaction
Finally settlement of transaction is made by means of delivering the share certificates along with the transfer deed but now clients having D. mail accounts the shares quantity price of the share is directly credited in personal account only.
GENUINE TRADING Vs SPECULATIVE TRADING
Investors can deal with stock exchange securities either for a genuine trading purpose or for the purpose of speculative trading. Genuine Investors generally give take delivery of shares with no intention to postpone the settlement to the next period. Their primary motive is to get long term gains in the other hand speculators do not take/give delivery of shares. They deal in differences in the purchases and sale prices. Their main intention is to carry forward the transactions and get short-term gains due to price difference.
Innovation in Financial Instruments:
Till 1992, corporate had limited freedom in designing and pricing financial instruments with the enunciation of new guidelines on capital issues by SEBI in 1992, corporate, were given considerable latitude in the design of financial instruments. Thanks to this freedom, a number of new instruments like and deep discount bonds, potable-cum-callable bonds, floating rate bonds and index bonds have been introduced.
Emergence of Numerous Capital Market intermediaries:
Many new capital market intermediaries have encouraged, while there was only one mutual fund (UTI) in existence till 1986, a number of new mutual funds have come in to bearing since then.
Establishment of new stock Exchange and Growth in Trading:
Stock exchanges are the pivot of capital market. They serve as the channels through which primary issues are offered to the inverting public and they provide the mechanism through which outstanding securities are traded. While there was only a recognized stock exchanges in 1980’s the number has gone up to 22 by the end of 1997. The most important event, of course, those been establishment of NSE in November 1994. Within a short period, it has emerged as the principal stock exchange in the country.
Adoption of screen Based Trading:
NSE and OTCEI were set up ab-initio, as computerized exchanges to have switched or are in the process of switching from traditional open outcry system of trading to screen-based system of trading. This has been a major development in the secondary market in
A major innovation in Indian capital market is introduction of screen based trading in place of open-outcry trading system where traders shout and resort to signal and trading of flour of exchange in replaced by screen-based trading. It is a systems where distract participation can trade with each other through computer network.
The traditional system of trading i.e., buying and selling is taken place through share brokers of the stock exchange is the auction market. In the action market, the market and an auction system based on a current high bid low offer. Those not meeting either of these prices may not participate in the auction. The auction system. The buy and sell orders are automatically matched with specialist filling in the gap when an imbalance occurs. The specialist system emerged precisely because in a continuos auction market where broker trade with each other there is no guarantee of a simultaneous coincidence of buyer and seller. This system of trading having lots of drawbacks to overcome this new system of trading was introduced namely screen-based system or online-trading.
Emerging Derivatives Market Structure in
Apart from traditional financial market, two more markets are emerging; namely the derivatives market has came into being recently and the bank assurance market, which is likely to emerge in an important way once banks start undertaking insurance business derivatives in the Indian Financial markets are of recent origin barring trade related toward contracts in the forex exchange. Exchange trade derivatives tend to be more standardized and offer greater liquidity than OTC contract, which are negotiated between counter parties and tailored to meet the needs of the parties to the contract, exchange traded derivatives also offer centralized limits on individual positions and has formal rules for risk and burden sharing while one exchange traded derivative viz., stock index futures was introduced by the two largest stock exchange in June 2000.
The most notable development concerning the secondary segment of the Indian capital market is the introduction of derivatives trading in June 2000. SBI approved derivatives trading based on futures contract at both BSE and NSE in accordance with the rules / by laws. And regulations of the stock exchanges BSE and NSE have made a beginning with equity derivatives with the introduction of stock index futures.
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