How does stock trading take place?

  • : The government has appointed SEBI to monitor the Indian stock markets. The exchange is a virtual place where the buyers and sellers come together and bid prices for buying or selling stocks via their brokers. Brokers are hired by exchanges to handle the retail investors, traders, etc. Banks also have their investment wing wherein they invest money into the markets.
  • : Since exchanges have appointed brokers to handle traders, the exchanges are risk-free. In the event where the trader is not able to pay money on time, the exchange takes the money from the caution deposit of the broker.
  • : People choose stock trading because currently it looks like a good option. With the decreasing interest rates in the bank and increasing risk in the field of real estate and rapidly changing government regulations, people are looking forward to mutual fund houses and other portfolio managers to help them make some money from their savings.
  • : Arbitrage trading is technically possible, but not advisable if you are shorting a stock in the spot market(intraday trading). If you are already holding a stock from one exchange you can sell it on another exchange provided this company is listed on both the exchanges.
  • : When you are placing a buy order for say Rs 100, it means that you are ready to pay UP TO Rs 100 for the particular stock. The order will always be executed based on the bid of the bestseller (The one bidding on the lowest price). So say the seller is coating Rs 50 and you (The buyer) is coating Rs 100, the trade will be executed on Rs 50 if it's not the first trade of the day for that stock.In that case, since there are no pre-existing sellers, the trade will be executed Rs 100.
  • : There are two types of trading Intraday trading (Tade gets settled on the same day) and Positional trading ( Trade gets settled on a decided future date). The latter can be subdivided into futures and options. The orders can be placed via the broker.
  • : A long position is when you buy a stock with an expectation that its price will go up. Long unwinding is when you sell the pre-owned stock at a higher price. A short position is when you expect the stock price to go down and you sell a stock you don't currently own. Short covering is when you are buying the stock at a lower price to cover your previous short position.
  • : If the trader understands the risks and reward and makes a decision where his rewards are higher than his risks then he is a businessman. If his decisions are based on a gut feeling or if he invests in spite of having a higher risk to reward ratio, then he is a gambler.
  • : The buyers and sellers decide the stock price. The trade is never going to be executed if the buyer and seller don't agree on a common price, which is the last traded price or the stock price.
  • : There are two types of trading Intraday trading (Tade gets settled on the same day) and Positional trading ( Trade gets settled on a decided future date).
  • : The process of selling a stock without currently holding it, with the expectation that the price will go down is called shorting the stock. For spot markets, the short covering process i.e. buying stock for covering previous short position has to be completed on the same day. If the stocks are not present in the account on the same day, the exchange will buy the stock on the traders' behalf from the auction market (where the stock prices are generally higher) and also charge a fee of up to 20%.
  • : Knowing when to enter the market for a particular stock (long or short position) and when to exit the market (at stop loss) based on stock price and volume variations is called a Trade Plan. A trade plan helps the trader come out of the market at the right time either by making profits or preventing him from making a further loss.
  • : NO, it doesn't affect the monetary aspects DIRECTLY. But in most companies the people in the management hold some percent of the shares, thus they might be affected by the share price. Other aspects such as borrowing capital, the fear of being taken over, etc are factors why it companies care about their stock price.
1 Comment
  1. Srinivasan S M 5 years ago

    Nice answers Bhupen.

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