Share Market Process
Understanding the Working of a share market
To learn about how you can earn on the stock market, one has to understand how it works.
When a person want to buy/sell shares in the share market then he has to first place the order
with a broker or can do themselves using online trading systems (this will be discussed later).
When you place the buy order, the message is transferred to the exchange [either NSE
{National Stock Exchange} or BSE {Bombay Stock Exchange}] and the order stays in the queue of
exchange's other orders and gets executed if the price of that share comes to that value. Once
you get the confirmation of this transaction, the shares purchased, will be sent to your demat
account. The shares will be stored in demat account in electronic format.
Rolling Settlement Cycle: (RSC)
RSC means when you will get your shares in your demat account.
In a rolling settlement, each trading day(T) is considered as a trading period and trades
executed during the trading day(T) are settled on a T+2 basis i.e. trading day plus two working
days. So the conclusion is on forth working day you will get the shares in your demat account.
Type of Markets
Basically there are two types of markets.
1. Primary market
2. Secondary market
Primary Market
A primary market is a place where companies, government and other corporate bodies sell new
shares and other financial products which are also called as financial products. In primary
market trading is not allowed.
Like any newly listed company sells IPO (initial public offer) then it happens in primary market
or whenever any already exiting company goes public then at that time it issues an IPO in
primary market.
Secondary market
A market place where actual share trading (buying and selling) takes place is called secondary
market.
Majority of share trading in India happens in top two exchanges called NSE and BSE.
What is the Process to Enter in Indian Share Market ?
If you have decided to trade in stocks the first thing that you need to decide is the stock market where you will trade. There are mainly two major stock exchanges in India – The Bombay Stock Exchange or BSE and the National Stock Exchange or NSE. While the BSE is the largest stock exchange in the country and it is the biggest in world in terms of number of listed companies, the NSE is the virtual exchange where you can only trade online. Both these exchanges have their benefits and limitations. They have different rules of trading and not all the stocks are traded at each of the stock exchange. So you have to select the exchange where you can trade, but of course you can trade differently at both the exchanges if you are trading online.
The next most important thing that you should have is a broker through whom you will undertake the trading. Every stock exchange has listed stock brokers through whom the trading is done by the investors. Based on the stock exchange you wish to trade you have to get a broker to do the trading. Moreover, you would also need to have a DP account to buy and sell shares. You can either opt for a conventional broker or you can choose to trade online. If you are trading online you can get the broking service from the banking or non banking organisations offering online trading facilities. They will provide you with the DP account, online trading account and act as your broker.
The next thing that you need to decide is the type of stocks and the nature of trading. It is essential as you need to have a strategy for stock market investment. You can not just abruptly buy some stocks and sell them. Though it may give you some profit at some point of time, to gain from stock market you need to have to make well thought investment strategically. Therefore it is important to decide the nature of the trading and type of investment depending on the fund and your objective of investing in the stock market.
If you are here for some long term investment and get good return you should investment in the large cap blue chip stocks for longer periods. Most of the growth stocks of the large cap segment give good return in the future. But if you are here for some instant income then you should go for daily trading and the short term and marginal trading will be perfect for you. If you are having little fund to invest in the stock market and ready to take the risk, you go for derivative trading or margin trading. In margin trading you can invest in more number of stocks even with a little fund but the chances of loosing or gaining money is higher. But the wise thing to do is divide the fund accordingly and have separate funds for long term investment, daily trading and for buying IPO that is also a great way to earn from the market.
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