There is hesitation among most of learnt people when it comes to investing in stock market. this is some theoretical description for the beginners

1. TRADING IN STOCK MARKET
Krupasindhu MD
Vijaya College, R. V. Road, Bengaluru-4

2. Patterns of Trading and
Settlement
Trading is identified as transferring the stock or
security from a seller to a buyer in a stock
exchange.
Settlement is a process whereby securities are
delivered against payment of money, to fulfill
contractual obligations under securities trades.

3. Types of Trading in Stock
Market
 Day trading- traders spend hours together in monitoring
the market in order to be on top of the fluctuation in stock
prices. They can make large transactions on any day some
times in a matter of minutes hoping to grab the wave of price
change.
 Swing trading- traders watch a stock for weeks or months
and make fundamental and technical analysis. It is good
strategy because the study reports can be done during
commute, lunch breaks or weekends
 Position trading- an individual holds (waiting time)
a position in a security for a long period of time, typically
over a number of months or years and profit from longer-term
trends.

4. Types of Settlements in Stock
Market
 Dematerialized settlement- when stocks are credited
into demat account of a beneficiary, it is also known
as online settlement
 Physical settlement – when share certificates are
delivered to him in person or through registered post
 Spot settlement- shares are delivered when the
payment is done for a buying transaction on same day
 Future settlement –shares are delivered after the
payment for buying securities at a future date

5. Objectives to buy stocks
 Investment - An individual purchases a financial asset with
an expectation to earn regular returns in the future or he will
later sell it at a higher price for a profit when its market value
arrives at his desired price.
It also helps to remain associated with a company as a
shareholder or promoter for long term and enjoy the benefits
for instance, dividend, brand value reputation, limited risk etc.
An investor makes both fundamental analysis and technical
analysis before buying a stock
 Speculation is a process of buying a stock after making a
thorough observation of the price fluctuations in stock
exchange. Speculator trades based on forecast made after
technical analysis.

6. Difference between Investment and
Speculation
Parameters Investment Speculation
Why is it needed?
Purpose
To remain associated
with a company, long
term regular returns
to sell the stock in
future and make profit
When is it needed?
Timing
when future has to be
secured monetarily like
retirement plans
When effects of
market efficiencies
are at our
advantageous
How frequently is the
trading done?
Once in month, year
or seasonal
Daily or weekly

7. Difference between Investment and
Speculation
Parameters Investment Speculation
What is the benefit? circulating savings in
financial system and
improve the economy
of a country
It helps in
smoothening out
fluctuation in prices in
stock market
What is the extent
of risk?
Risks are minimum Risks are high based
on markets stability
What skills are
needed for decision
making?
Thorough research
about the company’s
background
technical analysis
and
forecasting abilities

8. Types of speculators
 Commission brokers: he buys and sells
securities on behalf of his clients for a
commission. He does not purchase or sell in his
own name. He negotiates terms to safeguard the
investor’s interest. He deals with non-member too
 Jobbers: is a professional independent broker
who enter into contracts and makes bargains on
his own behalf. He also quotes prices for the
securities. He is not allowed to deal with non-
members but only with stockbroker or another
jobber

9. Types of speculators
 Tarawaniwalas: acts as a broker as well as a jobber.
He trades in his own name when contracts are
available for spread(difference between the buying
and selling price) and sometimes services as a broker
for his clients and get commission for the same
 Budliwalas: are the financiers, who take delivery of
securities on due date at end of clearing for those
clients who wish to carry over purchases and give
delivery to clients when they are short of securities on
due date at the end of clearing for those who wish to
carry over the sales.

10. Types of speculators
 A Bull is a speculator who anticipates rise in
the price of securities. He buys securities
with a view to sell them in future at a higher
price and thereby earns profits.
 A Bear is a speculator, who anticipates fall in
the price of securities. He sells- securities for
future delivery. He sells securities which he
does not possess with the hope to buy the
securities at a lower price before the date of
delivery.

11. Types of speculators
 A stag applies for securities of a new company
with the idea of selling them at a premium
after allotment.
 Lame Duck is a condition of a bear who is
not able to meet his commitments (has
incurred loss)

12. Activities of Broker
 Full service brokers provide with advice,
updates to manage the investment. Their services
are more expensive than no frills broker or online
stock broker
 Discount stock broker is a stockbroker who
carries out buy and sell orders at a reduced
commission rate
 Online brokers use the power of internet, they
provide up-to-date information and advanced
stock trading platforms to suit a variety of

13. To trade online, one has to create demat
account. This facility is given by a depository
participant. DP is any NBFC with the
authorization to provide demat account for
traders. This authorization is given by
depositories.

14. Meaning of Depository
It is an organization which holds securities
(shares, debentures, bond, government
securities, units etc) in electronic form.
it also provides services related to transactions
in securities at the request of clients through
depository participants
In India, there are 2 such depositories, they are
NSDL & CDSL

15. National Securities Depositories Limited
(NSDL) Incorporation in 1995, Dec 12th by
NSE, IDBI, UTI, and with paid up capital of 105
crores.
Central Depositories Services Limited (CDSL)
Incorporation in 1999 Feb by BSE ltd and BOI
with paid up capital of 104.5 Crores

16. Objectives of depositories
 To holds securities in electronic form
 To act as clearing house for its beneficiary
owners (customers)
 To provide banking facilities in terms of e-
securities
 To avoid the risks in settlement
 To increase liquidity and efficiency
 To reduce the time and cost

17. Benefits of NSDL/CDSL
 Elimination of bad deliveries: by avoid any risk associated
with physical share certificates like exposure to mutilation,
stolen, misplaced, wrong address delivery, burnt or lost in
transit.
 No stamp duty for transfer of any kind of securities in the
depositories: investor need not pay any stamp duty for
storing the securities in electronic form at depository
 Immediate transfer and registration of securities:
whenever the investor buys securities, depositories help in
transferring the share certificate from company to investor’s
Demat a/c in electronic form. these shares are registered too
by the depository
 Rolling settlement system (T +2d), securities are quickly
rd

18. Benefits of NSDL/CDSL
 Elimination of problems related to change
of address of investor
 Faster disbursement of non cash corporate
benefits: like rights, bonus etc
 Reduction in brokerage
 Periodic status update
 Minors are also provided demat services

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