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Trading Procedure of Stock Exchange

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Estimated time: 9 minutes
CBSE: Class 12

Introduction

  • An investor has to follow a systematic procedure to buy or sell securities on a stock exchange, starting with a broker and ending with settlement of the transaction.
  • This trading procedure ensures that all transactions are carried out in an organised, electronic manner through a Demat account and authorised intermediaries.
CBSE: Class 12

Trading Procedure of Stock Exchange

  • Selecting a broker: Trading in securities can be done only through authorised, registered brokers, who may be individuals, partnership firms, or companies.
  • Opening a Demat account: Investor opens a dematerialised account with a depository, held through a broker or a bank; this account is used for electronic trading and for reporting all transactions to the investor.
  • Placing an order: Once the Demat account is activated, the investor can place an order to buy or sell securities, either directly or through the broker.
  • Execution of the order: The broker executes the order as per the investor's instructions and issues a contract note containing details such as date, time, and amount.
  • Settlement: This is the final stage where securities and funds are transferred; it includes on-the-spot settlement (immediate exchange) and forward settlement (exchange at a future date).
CBSE: Class 12

Key Points: Trading Procedure of Stock Exchange

  • Trading in securities begins by selecting an authorised stock broker.
  • The investor must open a Demat account for electronic holding and trading of securities.
  • Buy or sell orders are placed through the broker or electronically.
  • The broker executes the order and provides a contract note as proof of the transaction.
  • Settlement involves the transfer of securities and funds between the buyer and seller.
  • Trading is carried out in an organised, electronic and regulated manner through authorised intermediaries.
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