When a company decides to sell its securities via a stock exchange, it needs to register itself on BSE (Bombay Stock Exchange) or NSE (National Stock Exchange). Though there are 6 stock exchanges in total, BSE and NSE are the main stock exchanges. Once the company is listed on the stock exchange, you can purchase its securities and trade through offline or online mode. Previously, the majority of traders participated in offline trading with the help of brokers. With the advent of online trading platforms, it became easy for them to invest in the stock market in real-time. Also, they got saved from the excessive brokerage fees that stockbrokers charged once. If you want to invest or trade in the stock exchange, you will have to follow this procedure now:
Selecting a broker
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Before investing in the stock market, you need to select a broker who offers various services and charges a fee for them. If the brokerage is high, your profit will be impacted. Therefore, you must select a broker who charges a minimum transaction fee for buying and selling shares.
Opening a demat account
Now, you open demat account so that you can participate in online trading without any issues. A demat account means an account that holds the securities that you buy from the stock exchange. You need to open a demat account with a depository participant or DP who is registered with SEBI. The DP could be an individual broker, brokerage firm, or a company that provides an online trading platform. You will have to fill out an application form and attach the documents that validate your identity, income, and address.
It is recommended that the broker that you have chosen for trading is the one with whom you have opened a demat account. Though it is not mandatory, it will help you avoid any hassles in the future.
Placing buy/sell orders
Once you have opened a demat account, you will need to link it with a bank account to transfer the funds needed for buying shares. You will also need to open a trading account. If you don’t know what is a trading account, it is an account through which you can carry out the buy and sell transactions. Luckily, demat accounts that are integrated with a bank and trading accounts are available these days. This not only saves your time but also saves you from the hassles of going through the documentation and other procedures again.
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Once you place a buy order, the broker creates a contract note with all the information like the name of the stock, a number of stocks purchased, etc. However, the stocks get credited into your account only when the transaction is settled between the broker and the stock exchange. It generally takes T+2 days for the stocks to get settled into your account where T is the transaction date.
The same happens when you place a sell order as well. However, this time the stocks get debited from your account, and the money gets credited into your demat account. You can transfer the money to your bank account or use it for purchasing stocks or other securities. Though the money does not get credited into your account immediately, the brokers allow you to use them as a margin.
This is how trading procedures take place in the stock exchange. If you buy a stock at a lesser price and sell it at a higher price, you make a profit. However, you must also consider the brokerage charges while calculating the net profit. It is recommended that you invest in different stock companies and explore different market segments to enhance your chances of making a profit. Also, you must invest in a particular market segment only after gaining sufficient knowledge in it. There are multiple mobile apps that impart the basic knowledge of stock markets. Download these apps, increase your knowledge about stocks and other securities, and open a demat account to start trading.