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How securities are traded in India
The stock market allows for the buying and selling of shares of publicly traded companies. It exists electronically and can be accessed through a registered stockbroker. There are various types of participants in the stock market including individual retail investors, domestic and foreign institutions, and asset management companies. The stock market is regulated in India by the Securities and Exchange Board of India (SEBI) which oversees stock exchanges, brokers, and other entities to protect investors and ensure fair practices. A variety of financial intermediaries facilitate trading and transactions between investors and the stock exchanges.
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How securities are traded in India
- 1. By Ashoksathriyan MBA-SSoM How Securitiesare traded in Stock Exchange
- 2. ● The term"security" is a fungible, negotiable financial instrument that holds some type of monetary value. ● It represents an ownership position in a publicly-traded corporation—via stock—a creditor relationship with a governmental body or a corporation—represented by owning that entity's bond—or rights to ownership as represented by an option. What are securities?
- 3. Equity TA-TL Debt Bonds, Commercial paper Type ofsecurities Securities can be broadly categorized into two distinct types Hybrid
- 4. • The stockmarket is where everyone who wants to transact in shares goes to. • Transact in simple terms means buying and selling. For all practical purposes, you can’t buy/sell shares of a public company like Infosys without transacting through the stock markets. • The main purpose of the stock market is to help you facilitate your transactions. So if you are a buyer of a share, the stock market helps you meet the seller and vice versa. • The stock market does not exist in a brick and mortar form. It exists in electronic form. You access the market electronically from your computer and go about conducting your transactions (buying and selling of shares). • Also, it is important to note that you can access the stock market via a registered intermediary called the stockbroker. What is stock market?
- 5. Stock Exchange BSE Founded: 1875 BenchmarkIndex: SENSEX Listed: 1600+ NSE Founded: 1992 Benchmark Index: NIFTY Listed: 5000+
- 6. Market Participants Domestic Retail Participants These arepeople like you and me transacting in markets NRI’s and OCI These are people of Indian origin but based outside India 01 03 02 04 05 Domestic Institutions These are large corporate entities based in India. A classic example would be the LIC of India. Domestic Asset Management Companies (AMC) Participants in this category would be the mutual fund companies such as SBI Mutual Fund, HDFC AMC, etc. Foreign Institutional Investors Non-Indian corporate entities. These could be foreign asset management companies, hedge funds, and other investors
- 7. In India thestock market regulator is called The Securities and Exchange Board of India often referred to as SEBI. In general, SEBI ensures: ● The stock exchanges (BSE and NSE) conducts its business fairly ● Stockbrokers and sub-brokers conduct their business fairly ● Participants don’t get involved in unfair practices ● Corporate’s don’t use the markets to unduly benefit themselves (Example – Satyam Computers) ● Small retail investors interests are protected ● Large investors with huge cash pile should not manipulate the markets ● An overall development of markets The Regulator
- 8. Entities Regulated BySEBI Credit Rating Agency (CRA) CRISIL, ICRA, CARE They rate the credit worthiness of corporate and governments Debenture Trustees Almost all banks in India Act as a trustee to corporate debenture Depositories NSDL and CDSL Safekeeping, reporting and settlement of clients securities Depositary Participant Most of the banks and few stock brokers Act as an agent to the two depositories FII Foreign corporate, funds and individuals Make investments in India Merchant Bankers Karvy, Axis Bank, Edelweiss Capital Help companies raise money in the primary markets
- 9. Entities Regulated BySEBI AMC HDFC AMC, Reliance Capital, SBI Capital Offer Mutual Fund Schemes Portfolio Managers Religare Wealth Management, Parag Parikh PMS Offer PMS schemes Stock Brokers and Sub Broker Zerodha, Sharekhan, ICICI Direct Act as a intermediary between an investor and the stock exchange
- 10. Financial Intermediaries Stock Broker Trading Account DP NSCC Land ICCL Banks Faciliate Money Transfer Clearing Corporations DEMAT Account
- 11. What moves thestock?
- 12. Stock Market Index TheIndex is a composition of many stocks from different sectors which collectively represents the state of the economy Practical uses of the Index 1. Information 2. Benchmarking 3. Trading 4. Portfolio Hedging
- 13. Index construction methodology •To include a stock in the index it should qualify certain criteria. Once qualified as an index stock, it should continue to qualify on the stated criteria. If it fails to maintain the criteria, the stock gets replaced by another stock that qualifies the prerequisites. • Each stock in the index should be assigned a certain weightage. Weightage in simpler terms defines how much importance a certain stock in the index gets compared to the others. • The weights are assigned based on the free-float market capitalization of the company, the larger the market capitalization, the higher is the weight. • Free float market capitalization is the product of the total number of shares outstanding in the market, and the price of the stock. • For example company, ABC has a total of 100 shares outstanding in the market, and the stock price is at 50 then the free-float market cap of ABC is 100*50 = Rs.5,000.
- 14. Type of Traders DayTrader A day trader initiates and closes the position during the day Scalper A type of a day trader. He usually trades very large quantities of shares and holds the stock for very less time with an intention to make a small but quick profit. Investor Growth Investor Value Investor Swing Trader A swing trader holds on to his trade for slightly longer time duration, the duration can run into anywhere between few days to weeks.
- 15. Jargons • Bull Market(Bullish) • Bear Market (Bearish) • Trend • Face value of a stock – Face value (FV) • 52 week high/low • All-time high/low • Upper Circuit/Lower Circuit • Long Position • Short Position • Square off • Intraday position • OHLC • Volume
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