Know the basics of Stock Market - Part 2

As after knowing the basics of Stock market Part-1, this is the continuation of it.

If you thought that investing your money in the stock market is very easy, then you must think twice. Investing in the stock market is not everybody’s cup of tea. Unless you make a good research of the market, you would end up losing all your money by investing in the stock market. So you should remember that awareness is everything in day trading. We should be fully aware of the different concepts of the stock market. There are many important concepts where you need to know it very well in order to become success in the market. So, unless you have a good idea about the stock market report, you would not be able to make a good profit by investing in shares and stock.

Before knowing options to make money in stock market we need to know about some familiar words like SEBI, Dematerialization and Demat Account , rolling settlement ,broker etc. To invest for the first time you need to acquire necessary skills and then go for investment.

S E B I: 

       

Securities and Exchange Board of India (SEBI) was established on April 12, 1992.It is a statutory regulatory body entrusted with the responsibility to regulate the Indian capital markets. It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations

Major Activities: 

1. To protect interest of investors in securities.

2. To promote the development of, and to regulate the securities market.

3. Provide guidelines and code of conduct of merchant bankers.

4. Regulation of futures and options, Index market.

5. Guideline for portfolio Management services.

6. Guideline for brokers, and other market intermediaries.

7. Regulations on takeovers.

8. Regulations on insider Trading.

9. Guideline for IPO, Mutual Funds, Debt instruments etc.

Dematerialization and Demat:

Demat  is a commonly used abbreviation for the word Dematerialization, which is a process whereby securities like shares , debentures are converted from the Material(Paper Document) form into electronic data and stored in the computers of an electronic depository.

Why Demat is required?

     Few years back, when a delivery was taken, the shares were received in physical form along with transfer deeds. After the introduction of Demat system, now we receive credit of shares in electronic form. Those who hold the old shares in physical form, now have to submit them to their Depository participants, and get it dematerialized.

Nowadays, for doing transactions in stock market Demat account is mandatory, as all the shares are now traded in Demat form.

Note: Delivery based investment is that those who want to hold a stock for few days or few months or years, they have to take delivery of the stock.

What is Meant by Trading and Investment?

The fundamental difference is that trading refers to short term buying and selling of shares whereas investment refers to long term buying of shares. A trader normally tries to churn the money rapidly whereas the investor tries to buy a good stock in the share market and waits for the stock price to appreciate.

Is the Trading Account Same as the Demat Account?

            There is an important difference between the two. Trading account is where you execute your buy and sell trades. The Demat account is where your shares are held in custody. When you buy shares in your trading account, your bank account gets debited and your Demat account get credited. The reverse is true when you sell shares.

Where to open a Demat Account?

                A Demat account has to be opened when one wishes to trade in the share market. Ideally, both, a bank or a brokerage firm are good options for opening a Demat account as long as they are a registered Depository Participant (DP). There are two DPs – NSDL(National Securities Depository Limited) or CDSL(Central Depository Services Limited). The DP that will hold your Demat account will depend on which one your broking firm has tied up with. 

IF your account is NSDL, then you get 8 digit client id .If your account is CDSL you get 16 digit Client id .No Major differences in both of them. But CDSL charges are lower than NSDL.

C D S L: Central Depository Services Limited is the second listed Indian central securities depository based in Mumbai. It was initially promoted by the BSE Ltd. Which thereafter divested its stake to leading banks. CDSL received the certificate of commencement of business from the Securities and Exchange Board of India (SEBI) in February 1999.

The main function of CDSL is to facilitate holding of Dematerialized securities enables securities transactions to be processed by book entry. CDSL facilitates holding and transacting in securities in the electronic form and facilitates settlement of trades on stock exchanges.

N S D L: National Securities Depository Limited, the first depository in India. It was established in August 1996 as the first electronic securities depository in India with national coverage. It went on to establish infrastructure based on international standards that handles most of the securities held and settled in de-materialized form in the Indian capital markets.

What is Brokerage?

          As per SEBI (Securities and Exchange Board of India) regulations, only registered members can operate in the stock market . One can trade by executing a deal only through a registered broker of a recognized Stock Exchange or through a SEBI-registered sub-broker.

What is the Role of a Broker in the Share Market?

          The broker helps you execute your buy and sell trades. Brokers typically help buyers find sellers and sellers find buyers. Most brokers will also advise you on what stocks to buy, what stocks to sell and how to invest money in share markets for beginners. They will also assist you in how to trade in stock market. For that service, the broker is paid brokerage.

Types of brokers:

To invest online, one needs a broking account which can be opened by approaching any of the brokerages such as HDFC Securities, ICICI Direct, Axis Direct, and Zerodha, recently angel Broking and upstox.

These broking firms can either be a discount broker or a service broker. The primary difference between the two is the range of products and services that are offered. A discount broker just carries out an investor's trading instructions and has equity and derivatives to offer, where as a service broker, in addition to what a discount broker offers, provides seamless investing options for initial public offerings (IPOs), mutual funds, and insurance on its platform. It is the service broker that comes with research reports on various stocks and sectors. Majority of the broking firms are service brokers.

 So, this is the second part of basics about stock market. Learn more in the Later posts.