The trading procedure in the Indian stock market has gone through various phases. Before 1996, trading on all stock exchanges was done through physical mode. The depository act, 1996 has made it mandatory for traders to place orders electronically. Under this act, two major depositories were established in 1996 and 1999. These depositories digitally hold the financial securities of traders.
Traders can buy and sell stocks, bonds, and various types of financial instruments which are listed on the stock exchanges. Indian brokerage firms provide free or low-cost brokerage facilities to traders. To become an experienced trader, you should know how to start share trading. Before starting trading in a stock exchange, let’s have a look at the trading procedure.
Share trading procedure on a stock exchange
Currently, six stock exchanges are working in India. Among these exchanges, the Bombay stock exchange and the National stock exchange. These are two important platforms where companies list their securities. You can buy and sell these listed securities through any broker. These brokers have their online platforms to open a Demat/trading account.
You should know the following steps to know how to start share trading in the stock exchanges:
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Selection of a broker
Many financial institutions, non-banking financial companies, and professional brokerage firms act as depository participants/brokers. Out of the list of all brokerage firms, you can choose the best one. Choosing a broker is not an easy task as their services are quite similar. Some of the brokers open a trading account with a low brokerage. whereas some offer free account opening services. You can use the following parameters to select the best brokerage firm:
- Brokerage charges such as annual maintenance charges, per-transaction cost, annual maintenance fees, and other service charges.
- Minimum time required to activate an account.
- Documentation requirements
- Additional trading support
The best broker provides quality service with low brokerage charges. Once you select your desired service provider, you can open an online trading account.
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Opening a trading account with the selected broker
Opening a trading account is an important step to start share trading. You can visit a broker’s online platform or mobile application to open a trading account. For this, you need to follow certain steps which are as follows:
- Fill an application form to share your personal details, financial status, residential information, and other relevant information. Filling the application usually takes an hour or less.
- Upload all relevant documents according to the broker’s directions. These documents include residential proofs, personal identity proofs, bank details, income receipts, and valid passport-size photos.
After these steps, the broker verifies documents through the Know Your Customer (KYC) process. Successful verification leads to account activation. Once you get your unique investor ID, you can place an order to buy and sell securities.
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Placing and executing the order
Unlike physical stock trading systems, you can place orders digitally to buy or sell any listed security. With an online trading account, orders can place from anywhere in the world. With a simple click-on buy option, you can place an order. In stock trading, various types of orders are spot orders, market orders, limit orders, and stop-loss orders. Before selecting an option from all the orders, first, get to know the features of each. The next step in the trading process is trade settlement. This process is initiated by a broker.
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Trade settlement
In the Indian stock market, buying and selling transactions are settled with a ‘T+2’ days rolling settlement system. In this system, the broker, clearinghouses, depositories, and stock exchanges play an important role.
With a simple click-on buy option, a broker starts the trading process. With the ‘T+2 days’ system, you get possession of bought securities after 2 days of transaction day. In these 2 rolling days, brokerage firms move the securities and funds to respective traders with the help of clearinghouses.
These are some important steps of Indian stock market trading that can be used to become a stock market trader.
Also read:- You Can Get Free Trading. But There’s Often A Catch
