Indian Stock Market Frequently Asked Questions

Indian Stock Market Frequently Asked Questions for beginners

Everyone who wants to work in the stock market or who wants to pursue a career in the Indian stock market has many questions in his mind. Investing in the market without knowing anything about the market can lead to huge financial losses. So we’ve compiled a list of common questions about the India stock market.

(Frequently Asked Questions), Let’s Start.

How to Start Trading in the Stock Market?

  • First Choose best, reputed & excellent customer care service providing stock broker like zerodha. This broker should be registered with SEBI. Try to choose broker provides option to trade in all segments like equity, commodity, currency & Mutual Fund also.
  • Now days online account opining is very easy and it takes only 10 minutes to complete the process. Only you required procedures by signing the broker and client agreement with him. Normally in within 48 hours you get the client code over your email id. Contract notes for future correspondence and transactions are sent to you by e-mail.
  • Always open demat account along with trading account. Some banks offer 3-in-1 accounts (Demat + Trading + Bank account) or you can open demat account with stockbroker and link with your bank account.
  • Once the account opening process done then you have 3 ways to deals in shares. 1st you can call to broker for buy & sell the shares. 2nd you can trade online. 3rd visit to nearest branch for order placement.

Why the Need for a Stock Broker?

According to SEBI regulations, only people registered for this can work in the stock market. This makes it possible to trade only through a registered broker.

What is Electronic Trading?

Electronic Trading in Indian stock Market
  • Electronic trading are Buying and selling of financial products through electronic medium like computer, internet, exchange server.
  • After internet and computer revolution all trading process shifted from physical to online. Now days broker no need to go to trading floor to trade. Traders only need a computer, internet connection & trading account for online trading. Now days trading are very easy, fast & jut one click away.
  • Electronic trading allows you to trade from home or from your office or any time any where with the help of your own computer or mobile APP. The main rule of thumb is when you want to trade immediately with a real time price.
  • There is no need to call the broker for this and there is no possibility of price change due to delay. We can trade with the brother we want immediately.
  • Call-n-trade is time consuming process due to online trading you no need to call the broker and pay extra charges for call-n-trade. Stock market is highly volatile some days and every seconds matters.

What is a Contract Note?

Every transaction you make is recorded on the exchange. The stock broker is obligated to give you a contract note for each transaction. This agreement notice states the price, time, number, broker’s name and brokerage of the trade you have made. You will receive a contract note of this agreement from your respective broker in a registered e-mail within 24 hours.

Note: Contact notes are very useful for checking your transactions.

Indian Stock Broker Contract Note sample

What is Book-Closure and Record Date?

  • Book-Closure: The book-closure looks at the number of investors registered in the company on the day. The company announces this date at regular intervals.
  • Record Date: A specific date is mentioned by the company. Only investors who have invested in the company’s stock before the due date get dividends, bonuses, rights, etc. It is essential for the investor to have shares in the name of the investor in order to get dividends, bonuses, rights etc before Record date.

Difference Between a Record Date and a Book Closure Date

The company does not close its register in case of record date. This date is counted as the last date to find out how many people in the company are claiming the right. In case of book closure, shares which cannot be sold in the market have transfer deed prior to book closure.

What is a No Delivery Period?

When a company advertises a book closure, the exchange sets a no-delivery period for it. Only trading is allowed during this period. Also, the settlement of this trade takes place only after the expiry of the no-delivery period. This is where the company that is entitled to the declared benefits can be excluded.

What is X-Dividend?

Once a company declares a dividend its call ‘ex-dividend’. Benefits of dividend will get to those investors has company shares before ex-dividend. As a result, the buyer of the shares does not get the benefit of the dividend paid earlier.

What is X-Date?

The first day of no-delivery is called the X-date. The company fixed book closure and record dates for bonuses, rights and dividends. So those who buy shares on or after this date are not entitled to take advantage of it.

What is a Bonus?

  • When surplus amount remains after paying all the debts of the company In such cases the surplus needs to be properly distributed and it is credited to the reserve or surplus account.
  • When a large amount is deposited in the company’s reserve account, the amount is credited to the share capital account through an entry. This amount is used to increase the outstanding shares in the market and give bonus shares to each investor. Which are given as a fixed bonus ratio. This issue is called bonus issue.
  • If the bonus ratio is 1: 2, it means that for every 2 shares, the shareholder gets 1 share. For this reason, if the shareholder used to have 2 shares, now he will have a total of 3 shares.

What is a Split?

This is a book entry in which the face value of the shares is increased instead of the outstanding shares. If the company splits two-way, it means that shares with a face value of Rs 10 to Rs 5. With face value. And those who had 1 share now have 2 shares.

What is a Buyback?

As the name suggests, this is an option that allows the company to buy its own shares back from investors. Company can do this in different ways like buy a small number of shares from the investor or can buy from open market through tender offer. Also company can buy by book building method from stock exchange or from odd lot.

What is a Settlement Cycle?

  • Every share traded in the market need to be accounted. This Accounting period knows as a settlement cycle. Both the NSE & BSE adopt rolling settlement process.
  • The accounting period can be calculated for the shares traded in this market. Both NSE and BSE adopt rolling settlement. At the end of each settlement, the stock broker has to calculate what to pay or to take delivery of shares and money from the market, and the stock broker has to pay on time as per its rules.

What is a Rolling Settlement?

Rolling settlement determines the trading price of each day and settles on a certain day during the settlement period. Currently exchanges follows T+2′ rolling settlement cycle. T stands for trading day & 2 stands for another two working days.

What is Short Selling?

  • Ramesh thinks that some shares will go down, he sells first and buys them back before the market closes, it is called ‘short selling‘. It is the opposite of buying first and then selling.
  • Suppose the share price falls as expected, then there is a big gain from this deal.
  • E.g. Ramesh things ABB shares will go down and after selling at ₹500 in the current market, suppose price of ABB goes down to ₹450 then Ramesh will earn ₹50 profit from each share.

Note:

  • Even there are no shares in the account, we can sell the shares and its call short selling.
  • Short selling can be done intraday. Also, in case of futures, short selling position can be maintained for more than one day by selling futures.

What is Bad Delivery?

SEBI has laid down uniform rules for delivery of shares. Bad delivery means that the shares certificate may be torn, damaged, tampered with, the name of the company may have been mistaken, etc. Bad delivery is only possible when it is in physical form. There is no possibility of bad delivery in demat.

How are Physical Shares Transferred?

Once the shares has been sold, it means that the shares have to be duly filled, signed and attached to the deed with the stamp and sent to the company in the name of the buyer. Once a new name is entered in the Shares Transfer Register, the transfer process is said to be completed.

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Indian Stock Market FAQ