Sunday, December 12, 2010

Process of Share Market

Let us understand 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.
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.

What is Demat account and why it is required?
Securities and Exchange Board of India (SEBI) is a board of India appointed by the Government of India in 1992 with its head office at Mumbai.
Its one of the function is helping the business in stock exchanges and in other security markets. In another word it is the regulator for stock exchanges. It monitors and regulates both stock exchanges in India.
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a) Demat (short form of Dematerialization) is the process by which an investor can get shares (also called as physical certificates)
converted into electronic form maintained in an account with the Depository Participant (DP).

b) DP could be organizations involved in the business of providing financial services like banks, brokers, financial institutions etc. DP’s are like agents of Depository.

c) Depository is an organization responsible to maintain investor’s securities (securities can be shares or any other form of investments) in the electronic form. In India there are two such organizations called NSDL (National Securities Depository Ltd.) and CDSL (Central Depository Services India Ltd.)

d) Investor’s wishing to open Demat account has to go DP and open the account.

e) Opening the Demat account is as simple as opening the saving bank account with any bank.
As you need bank account to save money, deposit cheques etc, likewise you need to have a demat account to buy and sell stocks in share market and to hold the shares.

f) All shares what you own will show in your demat account, so you don’t have to possess any physical certificates. All your shares are all held electronically in your demat account.
As you buy and sell the shares, accordingly, your shares will get adjusted in your demat account.

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