Before going in-depth with trading in the 21st century, let’s have a look at the concept of equity trading:
Concept of Equity trading:
Equity trading is the stock market activity of buying and selling the shares and stocks known as equities of the listed companies. The companies list their equity securities on some stock exchanges through which investors and traders can purchase and sell with a trading account. Every stock market offers plenty of securities for trading in order to get some returns. Trading in the stock market is available for bonds, derivatives like futures and options, government securities, and other short-term securities.
To trade in the equities, you must have a Demat cum trading account. With this account, the equity market allows you to invest through the cash trading segment, margin trading segment, and derivative segment.
In cash trading, buying and selling transactions demand a full settlement of cash in 2 days. In margin trading, broking firms support trading by providing funds to buy the equity stocks that you are unable to afford.
Indian equity trading in the 21st Century:
The Indian stock market has an immense trading history. With the introduction of the BOLT (BSE online trading) model in 1995, the Bombay Stock Exchange Ltd. has started the equity and other instruments’ trading with an online system. The National stock exchange adopted an online system in 1992 to trade in the market.
With the online trading mechanism, you can invest in equity stocks with the following methods:
- Cash equity trading:
With this type of trading, you need to add funds to your Demat and trading account to place a buying order for stock. With a “T+2 days” settlement system, you will get stocks in your online trading account and your fund will get deducted from the account through a broker. In this trading, your bought shares and stocks would digitally hold with the depositories namely the CDSL and the NSDL.
- Margin equity trading:
In case you have insufficient funds to buy the shares with high value, broker firms assist you to grant funds so that you can purchase your desired equity stocks. In exchange for lending funds, you are demanded to keep the securities as collateral with the broker. A separate margin call is also required to deposit with the broker.
In case, you would make a loss due to fluctuations, the broker forfeits all the margin money that you have deposited with the firm.
- Intraday trading:
Equities offer to trade in a single day period to earn a short-term high rate of return. With a smart online trading system, you can place a buying order and square off the position in the same trading session in case you get your desired return.
- E-margin trading with equities:
Like margin trading, you, as a trader, can get online credit for 265 days in order to get high potential gain through trading with high-value stocks.
Mechanism of Equity Trading in India in the Present Era
To execute the trade with the above methods, you are required to follow certain mechanisms:
- Firstly, you need a trading account to place the first order in either equity or bond security. To open a trading account, you have to fill an application form along with relevant documents. With a proper verification of documents, you get a unique client and investor number that would allow you to trade in the market.
- To buy a share or stock, make a buying order by clicking the option “Buy stock”. With just a single click, an order was placed with the broker. This day would be termed as “T day” on which the broker would debit the account with a stock value.
- On the sell side, the broker blocks the stocks of a trader who placed an order for “sell”.
- After 2 days, the broker transfers the securities in the buyer account and credits the fund in the seller’s account.
The trading mechanism for equities follows a rolling settlement system in which trade settlement requires 2 days after placing an order.
In India, equities are more preferable as compared to other securities indirect trading markets. Various facilities have made equity trading quite interesting and return generating for experienced as well as a newbie investor. With the adoption of the right equity stock, you can earn a sky-high return with your own strategies and commands.