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TRADING ONLINE IN INDIAN EQUITIES

TRADING ONLINE IN INDIAN EQUITIES
June 29
09:51 2016

So every day you come across stories of people who are supposedly minting money trading in the stock markets. Trading Online is a relatively easy way of making money with the right kind of information and advice. Trading Online might initially sound like rocket science, nevertheless learning it is highly beneficial in the longer run. Here we have tried to explain the various steps on how to trade the Indian Equity market.

Opening a trading account and demat account with a broker

Anyone who would like to trade in stock exchanges should have a trading account and demat account. While trading account is normally maintained by stock brokers, demat account is maintained by depository participants (DP). Some banks have established tie up with broking companies and are offering trading facilities to their clients.  As in the case of opening an account in a bank, opening trading account and demat account also need compliance with Know Your Customer norms. When a client is opening a trading account, he/she can simultaneously open a demat account also.

In order to open a trading account, the client has to visit t a stock broker’s office and sign the application for opening the account. He/she has to submit two copies of ID proof, two copies of Pan Card , two  copies of passport size photograph and two copies of address proof. Two copies are submitted because one copy will be used to open the demat account.  The accepted documents for ID proof are Aadhar Card, Valid passport (first page with photograph  and last page), Voter’s ID card (front and back), Valid Driving License (name, address and photo page) and Pan Card. If any other proof is produced, the details are to be furnished. The originals also should be produced for in person verification.

Any one of the following documents is accepted as valid address proof.

  • Valid passport (first page with photograph and last page)
  • Voter’s ID card (front and back)
  • Valid Driving License (name, address and photo page)
  • Aadhar Card
  • Bank Statement/ Passbook (not more than 3 months old containing the name and address of the accountholder )
  • Banker’s verification letter (Original)
  • Electricity Bill (not more than 3 months old)
  • Resident land line telephone bill (not more than 3 months old)
  • Registered Sale agreement of flat/residence
  • Registered lease/leave and lease agreement

Before submitting the proof of ID and address it should be ensured that the name and address mentioned in all these documents are the same and there should not be any difference in spelling or initials. For example if the name of the person is mentioned as “John” in one document it should be “John” in all other documents and cannot be “Jone” or “Jon”. If there is any difference either it should be got corrected by the concerned authority in the relevant documents or an affidavit executed in stamp paper with prescribed value (stamp duty varies from state to state) and certified by a Notary Public should also be produced. These documents are necessary in the case of all account holders if the account is to be opened as joint account.

Apart from these documents Bank proof with MICR/IFSC code, Demat proof (if already holding a demat account) and Proof of income also should be produced. The documents accepted as Bank Proof are Bank Statement / Bank Passbook (not more than three months old) with cheque leaf, Banker’s Certificate on letterhead of the bank (Original) and Cancelled personalized cheque leaf. These documents for the first accountholder only need be produced.

Those who are already holding a demat account can use the same account. Demat account is opened with a Depository Participant (DP). Scheduled commercial banks, stock broking firms etc. are acting as DP.  Most of the brokers are Depository Participants. The demat account is maintained with Depositories such as National Securities Depository Ltd. (NSDL) or Central Depository Services Ltd. (CSDL). While NSDL is an initiative of NSE, the CDSL is associated with BSE. The shares bought are credited to the demat account and sold are debited to the demat account. Now shares are issued only in demat form if the shareholder does not insist on physical certificate. The dematerialization of securities helps the holder to save the time, cost and hassles of transferring the securities while selling them because the items which are sold are simply transferred from one account to another. In order transfer shares the account holder have to produce a signed demat slip like we are producing a signed cheque leaf for transfer or withdrawal of money from our bank account. Generally demat account is opened automatically along with the trading account. Hence those who are holding a demat account should produce Client Master (CML copy duly attested by the DP) or DP Statement /Transaction cum Holding Statement. In the case of joint accounts the demat proof of the account maintained by any one of the holders need only be submitted.

Opening and Futures and Option Account with the same broker

Those who want to trade in F&O segment should produce proof income as additional document. The documents accepted as proof of income are Copy of ITR Acknowledgement, Salary Slip/ Copy of Form 16 in the case of salary income, Net Worth Certificate (not more than one year old), Copy of Demat Account Holding Statement or Bank Account Statement reflecting transaction for not less than last 6 months.

Paying Margins

A cheque for the initial amount proposed to be invested in stock also should be submitted along with the documents. All transfer of funds will be through this bank account only.  Investors can pay partly or fully for the purchase of the stocks.  In case investor pays only margin amount first, then the investor has the obligation to pay the balance amount as and when the broker asked for.  In order to change the bank account an application should be submitted to the broking firm in the prescribed form. Once the account is opened the broking firm will inform the client code through e-mail as well as through SMS via the registered mobile. The client code is the user name for opening the trading window. In order to communicate the mobile number and e-mail ID has to be registered at the time of submitting the application for opening the trading account. The mobile number and e-mail ID can be changed subsequently, if necessary for which an application should be submitted to the broking firm in the prescribed form. The mobile number is the second security checking measure while logging in to the trading window.

Online trading account activation

In order to start the online trading the broking firm will send you a password. This password is temporary. You can use this only for creating a new password. Once you open the trading window, the screen will ask your client code. When you type the client code the system will download all applications from the website of the broking company and will lead you to a page showing a window for client code and password. Here you have to type the client code again and the password given by the broking company. Then the system will direct you to a page which will require generating a new password. The new password requires not less than 8 characters with at least one numeral or a special character. Once the new password is typed, it has to be retyped in the confirm password column. Once the password is accepted the system will lead you to the Login page and you can open the trading window using the new password. The broking firms now follow two say security check system. After the password is typed and submitted, the system will ask you type your mobile number. This number should be the same which you had given at the time of opening the account. Only after the mobile number matches with the one which is with them the trading window will be opened.

Trading window and its importance

Once you open the trading window you will get only a blank page. In the tool bar you can see a button “Market Watch”. If you click here another blank page will appear. Here there will be provisions for downloading information about shares and securities from the NSE and BSE. You can first select the exchange and then type the first two letters of the code of the scrip given by the exchange. BSE and NSE has given code for each scrip. You can also type the name of the company the shares of which you want to trade. Alternatively, you can right click the mouse on the blank page and a pop up will appear. In this pop up, if you scroll down you can see NIFTY or SENSEX as the case may be. If you click on this the details of all the shares in NIFTY/SENSEX will be downloaded in the page. You can also create your own portfolio by down loading the details of shares you want to include in this portfolio separately and save by giving it a name. In this portfolio you can view the details of shares traded in both BSE and NSE. If you create a portfolio like this, you can straight away go to this page by clicking on the right button of your mouse and selecting your portfolio from the pop up.

Order placements

Now you are ready for buying and selling. You can buy and sell by selecting a scrip from the list and clicking on the button “Buy Order” for buying and “Sell Order” for selling. Once you click on these buttons a separate pop up will appear showing the details of the shares you opted where you can enter the quantity and price. Once you click the submit button the system will ask you for confirmation and if you click OK, the order will be saved in the order book. The order will be executed when the market touches the price you opted. Since the buying and selling windows are in separate colour there is hardly any chance for putting a sell order instead of buying. Still it is necessary to be careful while placing orders. For example if a sell order is placed without adequate stock in your demat account, the exchange will buy the shares in short from the market at the highest price on the settlement day and close the transaction and you may have to pay penalty by way of the price difference.

Utmost care is necessary while trading online. You must be careful in putting the price in the buy and sell window. If you quote a price higher than the ongoing market price of that share in the BUY window, the order will be executed immediately and will create a sudden upward movement in the price of that scrip, especially when the order quantity is bulk. This is applicable in the case of selling also. The exchange will closely watch such transactions and may initiate penal action against such traders if the transaction is proved to be detrimental to the interest of the general investors.

You can transfer funds from your bank account to the trading account and back by using the pay in and pay out facility in the trading window. The unutilized amount in your trading account will automatically transferred to your bank account at the end of every three months.

Trading Hours

Trading in stock market is an excellent activity for the housewives who have spare time after the children are sent to school and the husband leaves to office. The market opens at 9.30 am everyday from Monday to Friday except on national holidays and other declared holidays. It is better to avoid any trading activity between 9.30 am to 10 am and 3 pm to 3.30 pm because during this time the market will not reflect the correct trend as the traders will be adjusting their positions during this time. It is better to concentrate on one or two scrips at in a day and closely follow the trend before trading. If trading is done against margin the transaction has to be closed at the end of the day. Hence the position should be wound up at the best available opportunity. If trading on delivery there should be enough balance in the trading account on the settlement day. A person who is trading in the market should follow the live chart in order to select an appropriate time for entry and exit. For finding out sound and good scrips investors should have the knowledge of fundamental analysis or have to get expert opinion. Trading in stock market is a profitable activity if done carefully, without greed and without fear.

About Author

Dr. Sasidharan K

Dr. Sasidharan K

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