In any field if you start gathering knowledge and try to understand the fundamentals, you would come across numerous terminology, jargon’s & concepts used. So we would also try to know the primary jargon and concepts related to stock market. Let’s start with the most vital :
A stock broker is your entrance to stock exchanges. Stock broker is the most important and essential part of share market. It’s a corporate organisation registered with SEBI & hold stock broking license. They provide services to an individual starting from opening of a trading & demat account .
In simple terms if you want to buy or sell a share of any company in stock exchange you need to have a trading account which will be provided to you by the stock broker. Brokers act as a middleman or mediator between you and exchange .
Earlier or even now some investors or traders go to brokers office to place a trade. However with the advancement in technology one can easily call and place trade. In addition there are trading terminals provided by brokers in India through which one can place trade by themselves .
Not to mention the benefit that stock broker has is of brokerage. While a trader or investor do any trade there is certain brokerage that’s get created. This is charged by the stock broker, it’s a kind of commission for facilitating you with the various services provided to you by them .
Please note that to open your trading account you cannot go directly to national stock exchange‘s office. You can look for broker online or nearby your local area .
Basic services provided by a stock broker :
- It gives you access to the stock market and let you do transactions .
- Support & help – for call and trade or software support for trading terminals.
- Provides you with high margin or leverage for trading .(will discuss later)
- Moreover they issues contract notes for the transaction you did. This is just like a receipt you take from any shop to check the charges are correct or not .
- fund transfer between you trading and bank account .
- Back office login to check the ledgers. An account summary in detail.
Since you are interested in understanding the fundamentals of markets, we would be knowing a little about who are depository and what is their role in stock market. Suppose you buy a piece of land as a property for your future however after sometime someone tried to acquire your land now to claim that its your property you should have proper documentation of papers to show .
Similarly if you buy a share today the only way to know that you own it is by showing the share certificate . As share is a part of ownership in a company hence if you own certain no. of shares and you have a certificate you can claim this whenever required .
Before 1996 the share certificate was in paper format however post 1996, the share certificates were converted to digital form. This is called de-materialization often known as DEMAT . Now to store this digital certificate you would require a demat account . Hence a Depository is a financial intermediary which offers the service of Demat account.
Now that you know that a broker helps you in trading account & DA which are interlinked .
There are two depositories offering you DEMAT account & there is no difference in terms of operation .
- National Securities Depository Limited (NSDL)
- Central Depository Services (India) Limited (CDSL)
They are working under strict guidelines of SEBI . In India SEBI (Securities and Exchange Board of India) is a Market Regulator . That is to say SEBI (Securities and Exchange Board of India)primary objective is to protect the interests of people in the stock market and provide a wholesome environment for market participants. To Know more about who is SEBI Click here.
For What purpose Demat Accounts Are Used ?
Now to know demat usage, as an illustration suppose you buy a share of tata motors from your trading account through call to your broker or by using a terminal. Once bought and the transaction is completed the work of trading account is finished. This shares you bought will require a place to get stored, now this shares will get stored in your DA .
So whenever you want to sell your shares, you can easily sell those from your trading account and it gets debited from your DA . To open a DEMAT ACCOUNT you need to communicate with depository participants (DP) . As a matter of fact, nowadays you do not need to do anything just contact or choose the right broker and they will help you in opening of your trading plus demat account .
Types of Share market :
Primary market –
When a company registers itself for the first time to sell its shares and raise funds, it enters the primary market also known as initial public offering (IPO) . This is also called getting listed in a stock exchange. Once it gets listed in public domain on any exchange (NSE,BSE ) people can trade .
Secondary market –
Secondary market is the place where already listed companies trades/ sell stocks. Investor or trader can buy or sell shares in secondary market . This the place where most of the trading happens. Here any investor or trader can buy or sell his share at the current prevailing price of a share, depending up on his strategy .
To learn more about Basics of Share Market for beginners click here .