Just like any marketplace where sellers and buyers meet to sell and buy physical goods; a stock market is a place where sellers and buyers come together to sell and purchase the shares of different companies that are listed on stock exchange.
Unlike any other marketplace, at the stock market, trading takes place electronically, and therefore, buyers and sellers remain anonymous to each other.
The share market is order-driven, i.e., the buying and selling orders are put on a trading platform, and they are matched automatically. The mechanism of the order-driven market provides the much-needed transparency to the stock market as all the trades placed are displayed on the trading system.
Role of brokers
The broker is a middleman between the buyers/sellers and exchange. If you are an individual who wants to invest or trade in the stock market, you need to open a Demat account and a trading account with a broker.
The broker also provides a trading platform on which you can trade. Many brokers these days are providing a mobile app to make trading more convenient and flexible. You can trade with just a few clicks on mobile.
Without the broker, it is not possible for the retail investors to trade in stock market.
There is 21 stock exchange in India, but most of the trading takes place on its two prominent stock exchange BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).
BSE is the oldest stock exchange in India and NSE was established in 1992. Though the trading mechanism, trading hours and settlement process for both the exchange are same, the exchange differs in some other aspect.
One of the main difference between both the exchange is the volume of shares traded on them.The volume of the shares traded on NSE is much more than the volume of shares traded on BSE.
Also, NSE enjoys a dominant share in spot trading and has a monopoly in the derivatives market.To rule out the possibilities of arbitration, the prices of shares on both the exchange are almost same.
Pre-requisite of trading in stock market
To trade in the stock market, you need to open a Demat account, trading account with your broker and a bank account from where you can transfer funds into your trading account and also can transfer funds from your trading account to your bank account.
Difference between Trading account and Demat account
Demat account is nothing but an account which will show all your holdings (number of shares possessed) in an electronic form.Shares will appear in Demat account only if a trader has taken a delivery of the shares traded. In case of intraday trading, shares will not appear in Demat account.
Trading account is just like a bank account. As you need to have a bank account to deposit and withdraw money from; you need a trading account to transact in the stock market.
The actual transaction of buying and selling shares takes place in the trading account.However, both the accounts are opened simultaneously by a broker. There is no extra paperwork required to open a trading account. It’s opened by a broker when you open a Demat account itself.
Documents required to open a Demat account
A trader needs to give the following documents to the broker to open a Demat account:
- A copy of Pan Card
- Address proof
- A copy of Aadhaar Card
- A copy of last Six months statement of bank account that you will link with your trading account
- A cancelled cheque
Once all these formalities are completed you are all set to trade.