2. Stock exchange is an organized and regulated financial
market where brokers and traders can buy and sell stocks,
bonds and other securities.
It is also called secondary market.
Trading in a stock exchange takes places in two phases:- in
the first phase, the member brokers execute their buy or sell
orders on behalf of their clients and in the second phase, the
securities and cash are exchanged.
For the exchange of securities and cash between traders, the
service of two other agencies are required, namely clearing
house(corporation) of the stock exchange and the
depositories.
3. The system of trading in stock exchanges for
many years was known as floor trading.
In the new electronic stock exchanges which
have fully automated computerized mode of
trading, floor trading is replaced with a new
system of trading known as screen-based
trading.
Screen-based trading are two types
1. Quote driven system
2. Order driven system
4. Under the quote driven system the market-
maker, who is a dealer in particular security,
input two way quotes into the system that is
bid price and offer price .
Under the order driven system clients place
their buy and sell orders with the brokers.
5. An investor may place two type of order namely-
market order or limit order .
Market order-In market order the broker is instructed
by the investor to buy or sell a stated number of share
immediately at the best price in the market.
Limit order- It is an order for the purchase or sale of
securities at a fixed price specified by the client.
“ buy at Rs. 50 or less”
“ sell at Rs. 60 or more”
No guarantee that limit order will be executed
6. There are certain types of orders which may
used by investors to protect their profit or
limit their losses.
Stop orders:-
It is used by investor to protect a profit or limit a
loss
It is an order to sell as soon as the price falls up to
a particular level or to buy when the price rises up
to a specified level. This is mainly to protect the
clients against a heavy fall or rise in price. So that
they may not suffer more than the specified unit.
7. Stop limit order:-
The stop limit order gives the investor the
opportunity of specifying a limit price for
executing the stop orders.
The maximum price for a stop buy order and
the minimum price for a stop sell order.
With a stop limit order, the investor specifies
two prices, a stop price and a limit price.
When the market price reaches or passes the
stop price, the spot limit order becomes a
limit order to be executed within the limit
price.
8. Trading in stock exchange takes place
continuously during the official trading hours.
Stock exchanges are open five days a week,
from Monday through Friday. An investor may
place orders for trade through his broker at
any time during the official trading hours.
Day order :-
A day order is an order that is valid only for
the trading day on which the order is placed. If
the order is not executed by the end of the day
, it is treated as cancelled.
9. Week orders:-
These are orders that are valid till the end of
the week during which the orders are placed.
They expire at the close of the trading session
on Friday of the week.
Month orders:-
These are orders that are valid till the end of
the month during which the orders are placed.
Month order expire at the close of the trading
session on the last working day of the month.
10. Open orders:-
Open orders are orders that remain valid till
they are executed by the brokers or specifically
cancelled by the investor. They are also known
as GTC orders.
Fill or Kill order:-
These order are also known as FOK orders.
These order mean to be executed immediately,
If not they are to be treated as cancelled.
11. Speculator Are traders who intend to make
high returns within a short time, making
short term profit from the fluctuation in
prices of securities in the stock market
Types of Speculator-Traders engaged in
speculative activity in the stock market are
described by different names based on the
types of activity they generally engage in.
They are Bulls, Bears, Stag and Lame duck.
12. A trader who expects a rise in price of securities
is known as a bull.
He takes a long position with respect to
securities.
he buys the securities to sell them at future date
at the higher price
The bulls will able to make profit only if the
prices rise as anticipate otherwise they will suffer
losses.
When the prices of securities are generally rising
in the market the market is said to be in a bullish
phase.
13. A bear is a speculator who expects a decline in
the prices of securities.
He takes a short position on securities by
engaging in short sales.
He attempts to cover of his short position by
buying the securities at lower prices when prices
decline.
The bear will suffer a loss if the prices of
securities rise after he takes a short position on
securities, when there is a general decline in
prices of securities in the stock market, the
market is said to be bearish.
14. He is speculator when the bear operator finds
it difficult to deliver the securities to the
consumer of rise in prices of securities
subsequent to short sale on a particular day
as agreed upon , he struggles as a lame duck
in fulfilling his commitment .
15. A stag is a trader who applies for shares in the
new issues market just like a genuine investor. A
stag is like the bull and expects a rise in the
prices of securities that he has applied for.
He anticipates that when the new shares are
listed in the stock exchange for trading , they
would be quoted at a premium, that is, above
their issue price. As soon as the Stag receives the
allotment of shares, he would sell them at the
stock exchange at the higher price and make a
profit .
A stag is said to be a premium hunter.
16. 1. Selection of a broker:
The buying and selling of securities can only be
done through SEBI registered brokers who are
members of the Stock Exchange. The broker
can be an individual, partnership firms. So the
first step is to select a broker who will buy/sell
securities on behalf of the investor.
17. 2. Opening Demat Account with Depository:
Demat (Dematerialized) account refer to an
account which an Indian citizen must open with
the depository participant (banks or stock
brokers) to trade in listed securities in
electronic form. Second step in trading
procedure is to open a Demat account.
18. 3. Placing the Order:
After opening the Demat Account, the
investor can place the order. The order can
be placed to the broker either personally or
through phone, email, etc.
Investor must place the order very clearly
specifying the range of price at which
securities can be bought or sold. e.g. “Buy
100 equity shares of Reliance for not more
than Rs 500 per share.”
19. 4. Executing the Order:
As per the Instructions of the investor, the
broker executes the order i.e. he buys or sells
the securities. Broker prepares a contract note
for the order executed. The contract note
contains the name and the price of securities,
name of parties and brokerage (commission)
charged by him. Contract note is signed by the
broker.
20. 5. Settlement:
This means actual transfer of securities. This is the last
stage in the trading of securities done by the broker on
behalf of their clients. There can be two types of
settlement.
a) On the spot settlement:
It means settlement is done immediately and on spot
settlement follows. This means any trade taking place
on Monday gets settled by Wednesday.
(b) Forward settlement:
It means settlement will take place on some future
date. All trading in stock exchanges takes place
between 9.15 am and 3.30 pm. Monday to Friday.
