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FINANCIAL ACCOUNTS
Content
DEMAT ACCOUNT AND ONLINE TRADING
1- Project overview
2-Introduction
3-History
4-Demat Account
A-Analysis on a Public Sector Banks
5-Online Trading
A-Analysis on the Trading Account
6-Concept of Demat Account
A- Depository services in India
B- Advantage and Disadvantage of Demat Account
C- Benefits of demat Account
D- Depository Participant
E- Opening of Dematralitions account (Demat A/C)
F- Closing of Dematralitions account (Demat A/C)
7-Concept of Online Trading
A- Types of Online Trading
B- Stock exchange
C- Share Trading
D- Trading order type
E- Rolling Settlement System
F- Research methodology
G- Why online trading enter late in India
H- Analysis and Interpretation
I- Limitation
8- Analysis of Demat account and online trading
9- Relation between Demat account and online trading
10- Conclusion
PROJECT OVERVIEW
The commencement of E-Trading and Demat has transformed the capital market in India.
With the help of Demat and Trading account, buying and selling of shares has become a
much faster and even process than trading with the assistance of a physical broker. It
provides for the assimilation of bank, broker, stock exchange and depository participants.
This helps to get rid of the painstaking procedure of investing in stock exchange. Today, if
one wants to invest in stock market, he has to contact a broker on phone or meet him
personally to place order. A broker generally gives such importance and additional service
only to high net worth customers. But the introduction of Internet trading, even a common or
a small investor gets an opportunity to avail the services at an affordable price which is much
lesser than what is charged by a physical broker over the phone. Online trading has given
customer a real time access to account information, stock quotes elaborated market research
and interactive trading. The prerequisites of internet trading are a computer, a modem and a
telephone connection, registration with broker, a bank a/c and depository account. The
introduction of depository service is consider as the beginning of the trading of stock @
click. This means that you can arrange delivery of scrips sold anytime, anywhere to anyone
by click of a mouse. Dematerialization facilitates to keep the securities in electronic form
instead of paper form. It offer more advantages than the physical certificate form. Despite the
advantage of dematerialization, the awareness levels among the investors relating to Demat
account and the various financial institutions providing such services. This study involves
understanding the various concepts of Demat and Analyzing the investment pattern of
individuals in India and a study on Analysis of awareness among investors regarding On
Line Trading and Dematerialization.
INTRODUCATION
The commencement of E-Trading and Demat has transformed the capital market in India.
With the help of Demat and Trading account, buying and selling of shares has become a
much faster and even process than trading with the assistance of a physical broker. It
provides for the assimilation of bank, broker, stock exchange and depository participants.
Today, if one wants to invest in stock market, he has to contact a broker on phone or meet
him personally to place order. A broker generally gives such importance and additional
service only to high net worth customers. But the introduction of Internet trading, even a
common or a small investor gets an opportunity to avail the service at an affordable price
which is much lesser than what is charged by a physical broker over the phone. Online
trading has given customer a real time access to account information, stock quotes elaborated
market research and interactive trading. The prerequisites of Internet trading are a computer,
a modem and a telephone connection, registration with broker, a bank a/c and depository
account. The introduction of depository service is considered as the beginning of the trading
of Stocks @click. Dematerialization facilitates to keep the securities in electronic form
instead of paper form. It offers more advantageous than the physical certificate form. Despite
the advantages of Dematerialization, the awareness levels among the investors relating to
demat account is not adequate because of numerous reasons.
Indian capital market has seen unprecedented boom in its activity in the last 15 years in
terms of number of stock exchanges, listed companies, trade volumes, market intermediaries,
investor population, etc. However, this surge in activity has brought with it numerous
problems that threaten the very survival of the capital markets in the long run, most of which
are due to the large volume of paper work involved and paper based trading, clearing and
settlement.
Until the late eighties, the common man kept away from capital market and thus the quantum
of funds mobilized through the market was meager. A major problem, however, continued to
plague the market. The Indian markets were drowned in shares in the form of paper and
hence it was problematic to handle them. Fake and stolen shares, fake signatures and
signature mismatch, duplication and mutilation of shares, transfer problems, etc. The
investors were scared and were under compensated for the risk borne by them. The century
old system of trading and settlement requires handling of huge volumes of paper work. This
has made the investors, both retail and institutional, wary of entering the capital market.
Government of India decided to set up a fully automated and high technology based model
exchange that could offer screen-based trading and depositories as the ultimate answer to all
such reforms and eliminate various bottlenecks in the capital market, particularly, the
clearing and settlement system in stock exchanges.
HISTORY
Due to the improvement of technology in the 20th century, the need for a physical location
became less important and traders transacted with the help of online trading or electronic
trading. Electronic trading made transactions easier to complete, monitor, clear and settle and
this helped its sustainability. Set up in 1971, NASDAQ was the world's first electronic
market although it was originally operated as an electronic trading platform rather than
offering Straight through Processing (STP). Globex is one of the earliest examples of
widespread electronic trading; the CME Group's electronic trading platform was conceived
in 1987 and launched in 1992. This allowed access to a variety of financial markets such as
treasuries, foreign exchange and commodities.
The most decisive period in the history of the BSE took place after 1992. In the aftermath of
a major scandal with market manipulation involving a BSE member named Harshad Mehta,
BSE responded to calls for reform with intransigence. The foot-dragging by the BSE helped
radicalize the position of the government, which encouraged the creation of the National
Stock Exchange (NSE), which created an electronic marketplace. NSE started trading on 4
November 1994. Within less than a year, NSE turnover exceeded the BSE. Today our
country has an advanced trading system which is a fully automated screen based trading
system.
NSE operated on NEAT system and BSE on BOLT system .Although the advent of
electronic trading changed the working of stock markets, it turned out to be very inefficient
as it could not cater to the service of transferring of securities in a quick and seedy manner.
The securities were in the form of physical assets and their movement involved risks such as
delays, theft, forgery mutilation, bad deliveries and also added to bad costs. To eradicate
these problems, the Depository Act of 1996 was passed in India. The first depository account
was setup in 1947 in Germany. Their operations in India are carried out in accordance with
the regulations made by SEBI, by-laws and rules of Depositories Act and SEBI (Depositories
and participants) Regulations Act of 1996. It was formed with the purpose of ensuring free
transferability of securities with speed, accuracy and security. Demat account is opened on
the same lines as that of bank account. Depository participants will have the prescribed
account opening form which needs to be filled and standard agreements are to be signed by
the client and the Depository participant, which details the rights and obligations of both
parties.
DEMAT ACCOUNT
Depositories in other words called as demat (dematerialized) account. In Indias banking
terminology, the term DEMAT Account refers to a deposit made at an Indian financial
institution that can be used for investing in shares of stocks and other financial assets.
Securities are held electronically in a DEMAT Account, thereby eliminating the need for
physical paper certificates. A Dematerialized account is opened by the investor while
registering with an investment broker or sub-broker. The Dematerialized account number is
quoted for all transactions to enable electronic settlements of trades to take place. Every
shareholder will have a Dematerialized account for the purpose of transacting shares.
In India, shares and securities are held electronically in a Dematerialized (or "Demat")
account, instead of the investor taking physical possession of certificates. A Dematerialized
account is opened by the investor while registering with an investment broker (or subbroker). The Dematerialized account number is quoted for all transactions to enable
electronic settlements of trades to take place. Every shareholder will have a Dematerialized
account for the purpose of transacting shares.
Access to the Dematerialized account requires and internet password and a transaction
password. Transfers or purchases of securities can then be initiated. Purchases and sales of
securities on the Dematerialized account are automatically made once transactions are
confirmed and completed.
Access to the Dematerialized account requires an internet password and a transaction
password. Transfers or purchases of securities can then be initiated.. Each security issued
bears a unique ISIN (International Securities Identification Number) issued by the
International Standards Organization (ISO). In India, the task of issuing ISIN of various
securities has been assigned by SEBI to NSDL. For Government securities, allotment of
ISIN is done by Reserve Bank of India. Each member country has a different code according
to the ISIN Standard (ISO 6166).
ISIN is a twelve-character long identification mark. It has three components a pre-fix, a
basic number and a check digit.
The pre-fix is a two digit country code as stated under ISO 3166 (IN for India).
The basic number is made up of nine alphanumeric characters (digits and/or
alphabets).
The check digit at the end of the ISIN is computed to check the validity of the ISIN. It
is calculated according to the modulus 10 Double Add Double Check.
Distinct ISINs are allotted to securities issued by the same company, issued at different
times or carrying different rights of different terms and conditions. Different ISINs are
issued to physical and dematerialized securities of the same issue.
ONLINE TRADING
Change is the law of nature". There were times when man was a Wanderer or a
normal. He himself had to go place to place in search of food, water and now everything is
available at your doorstep just at the click of the mouse. The growth of information
technology has affected almost all sectors of life. Internet has enabled us to get every
information at our doorstep.
When Internet has affected all sectors he could "stock markets" the most important player of
the economy, has remained far behind? Like all other sectors Internet has set its feet in the
stock markets also.
The Stock Market system provides single, nationwide securities. It enables LAN investors in
one part of the country to trade at the best quotes with an investor located in any other part of
the country through the members of the stock exchange and subsequently clears and settle the
trade in an efficient and cost effective manner. The primary objective of the Stock Market is
to provide clear opportunity to the investors throughout the country to trade any security
irrespective of the size of the order or the broker through whom the order is routed. This
provides the facility to execute the buy order at the lowest price in the stock market located
anywhere in the country without any extra cost to the investors.
There will be no trading floor in the exchange. Instead, each trading member will have a
Computer at his own office anywhere in India which will be connected to the central
computer system at the NSE through leased line or VSATs (very small aperture terminals),
for an interim transition period of 6 months & subsequently by satellite link. VSATs are
relatively smaller dishes similar to dish antenna for cable TV & have the benefit of not being
very expensive. A satellite network makes it possible to connect almost all the parts of the
nation quickly as it is easy to install, as against the ground lines such as dial up modems
leased lines, which are prone to disruptions, satellite links, on the other hands ensure high
speed,
Though trading accounts are traditionally thought to hold only stocks, a trading account can
hold cash, foreign cash, securities and a number of other types of investments.
Investors who use a number of trading strategies or have a number of brokerage accounts
may separate their accounts in order to avoid confusion. One account may be a registered
account for their retirement savings; another account may be a buy-and-hold account for
their long-term stocks; another may be a margin account; and another may be a trading
account used for conducting day-trading activities.
For performing the above tasks, two depositories viz, NSDL & CDSL have come up.
National Securities Depository Limited (NSDL) does the above tasks for the trades done on
NSE. It is a joint venture of:
IDBI (Industrial Development Bank of India Limited);
NSE (National Stock Exchange); and
UTI (Unit Trust of India).
NSDL is the first depository to be set up in India. It was registered by SEBI on June 7,
1996.
The second depository Central Depository Services Limited (CDSL) has been promoted
by Bombay Stock Exchange and Bank of India. It was formed in February 1999. Both
depositories have a network of Depository participants (DPs) which are further
electronically connected to their clients. So, DPs act as a link between the depositories
and the clients. The Depository system to some extent works like the banking system.
There is a central bank and the rules and regulations related to the working of all the
commercial, foreign, co-operative and other types of banks are framed by the central
bank. In order to do the daily transactions, the investors open an account with the
associate banks, and not with the central one. Like an investor can have a bank account
with more than one bank, similarly one can have more than one Demat Account.
NSDL
Transfers funds between
accounts
Safekeeping of money
Transfers securities between
accounts
Safekeeping of securities
NSDL
All joint holders to sign
instructions
No minimum balance required
Interest can be earned only by
participating in Stock Lending Scheme
a. The biggest limitation is that in order to have a demat account one needs to be internet
savvy and therefore people who are not that literate with internet will find it hard to operate
their demat account and therefore they tell their brokers or sub brokers to transact on behalf
of them which sometimes lead to fraud and mismanagement of funds by the sub brokers.
b. Another limitation is that since stocks are dematerialized individuals tend to keep looking
the stock price more often than they would have if stocks were in paper form and therefore
they end up doing trading instead of investment, however this limitation is not of demat
account but of individuals as they are not patient enough still many people blame it on demat
account when they are asked why they are in a hurry to sale shares.
c. Trading in securities may become uncontrolled in case of dematerialized securities.
d. It is incumbent upon the capital market regulator to keep a close watch on the trading in
dematerialized securities and see to it that trading does not act as a detriment to investors.
e. The role of key market players in case of dematerialized securities, such as stock-brokers,
needs to be supervised as they have the capability of manipulating the market.
f. Multiple regulatory frameworks have to be confirmed to, including the Depositories Act,
Regulations and the various By-Laws of various depositories. Additionally, agreements are
entered at various levels in the process of dematerialization. These may cause anxiety to the
investor desirous of simplicity.
g. Investors, who are trading for the first time, go with the flow and get immersed in
technology and actually temporarily forget that they are actually using their real money.
h. There is no relationship that of a mentor between a professional broker and an online
trading account holder, thus leaving the investor on his own to make choices of the right
shares.
i. Users who are not familiar with the ins and outs of the basics of brokerage software can
make mistakes which can prove to be a costly affair.
j. This is like any other financial strategy, where your commitment to online trading takes
research and dedication to make sure by yourself that everything is up to par. You have to
take time out to do your own research where you will have to overcome a great learning
curve to make some money from online trading a possibility.
Benefits of DEMAT account:
c. Benefits to brokers:
It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of
trading. It eliminates chances of forgery or bad delivery. It increases overall trading and
profitability. It increases confidence in their investors.
d. Other benefits:
I. Trading in the shares of the Company is now under the compulsory demat segment. With
SEBI making demat mandatory on most of the traded scrip, electronic transaction will be the
only way everyone will trade.
II. No stamp duty for transfer of securities in the electronic form. In case of transfer of
physical shares, stamp duty is payable on the market value of shares being transferred.
III. All risks associated with physical certificates such as delays, loss, in transit, theft,
mutilation, bad deliveries, etc. eliminated. The shares can be kept in the Frozen Mode by
your Depository Participant under the specific instructions of the client.
IV. The concept of an odd lot in respect of dematerialized shares stands abolished, i.e. in
the demat mode, market lot becomes one share.
V. Dematerialized securities are most preferred by banks and other financiers for providing
credit facility against securities. Generally, demat securities attract lower margin and lower
rates of interest compared to physical securities.
VI. Even in the electronic mode of trading, the payment mechanism (usually through a
broker) between the buyer and seller continues to be as before. Also the usual brokerage
charges would have to be incurred. However, after the settlement, pay in and pay out are on
the same day for scrip less trading which means you get your securities as well as cash
immediately.
VII. Shares bought or sold are transferred in your name on the very next day of pay out. In
case of physical shares, transfer of ownership takes 30 days or sometimes even more.
VIII. No courier/postal charges for sending share certificates/transfer deeds.
IX. Facility for freezing/locking of investor accounts, which enables you to make your
account non-operational, for instance if you are abroad.
X. Facility to pledge and hypothecate your securities available.
XI. As the Depository System becomes popular, brokers will be increasingly reluctant to deal
with physical shares.
XII. Investors prefer to buy shares which are already in dematerialized form.
DEPOSITORY PARTICIPANT
As a broker represents their investors, and can trade on their behalf either on the stock
exchange or off-market. Similarly, a Depository Participant (DP) is the representative (agent)
of the investor in the depository system providing the link between the Company and the
client through the Depository. In India, a Depository Participant (DP) is described as an
agent of the depository. They are the intermediaries between the depository and the
investors. The relationship between the DPs and the depository is governed by an agreement
made between the two under the Depositories Act. In a strictly legal sense, a DP is an entity
who is registered as such with SEBI under the sub section 1A of Section 12 of the SEBI Act.
As per the provisions of this Act, a DP can offer depository-related services only after
obtaining a certificate of registration from SEBI. As of 2012, there were 288 DPs of NSDL
and 563 DPs of CSDL registered with SEBI.
SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of RS. 50 lakh for
stockbrokers R&T agents and non-banking finance companies (NBFC), for granting them a
certificate of registration to act as DPs. If a stockbroker seeks to act as a DP in more than one
depository, he should comply with the specified net worth criterion separately for each such
depository. No minimum net worth criterion has been prescribed for other categories of DPs;
however, depositories can fix a higher net worth criterion for their DPs.
A depository participant can be a bank or even stock brokers having the license to
open demat account depending on convenience of the investor.
Broker is different from a DP. A broker is a member of the stock exchange who buys
and sells shares on his behalf and on behalf of his clients, though he could also hold a license
to provide depository services.
A DP just gives an account to hold those shares. It is not necessary for an investor to
open a DP account with broker.
The account of an investor can be different from that of the broker. Many brokers also
offer three-in-one trading accounts which link your broking, demat and bank accounts
online, thus making it easier for investors to trade.
A Broker is a member of the stock exchange, who buys and sells shares on his behalf
and behalf on his clients.
Application
The account holder must submit the application in the prescribed format as specified by the
depository. The application form can be downloaded from the website of the depository or
DP. It can also be closed on the basis of a request letter submitted by the client to the DP on a
plain paper giving details of the account.
Formalities
A duly filled rematerialisation Request Form (RRF) should be submitted for securities that
are to be rematerialized. If you want to shift the securities to another account, a delivery
instruction slip (DIS) has to be given in an off-market transaction.
Unused DIS
The unused DIS must be submitted along with the closure form or a declaration must be
given that all unused slips have been destroyed.
Points to note
> An account cannot be closed if there is a lien marked on any of the securities held in it or if
the securities are frozen.
> A demat account closure form from a PoA holder will not be entertained by the DP.
2. Cash Trading
Cash trading is an investment strategy that calls for the investor to make purchases of
securities on a cash basis only. This is different from the process of trading on margin, where
the investor makes use of a line of credit extended through a broker. With the cash trading
method, the investor relies solely on the balance of his or her cash account to purchase
stocks, bonds, commodities or other investment vehicles. Cash trading is unlike margin
trading because the account holder cannot borrow money from the broker to fund the
transaction. Cash trading involves less risk than margin trading, because risk is limited to
only the cash invested.
STOCK EXCHANGE
(a) National
Vision: "Emerge as the premier Indian stock exchange with best-inclass global practice in technology, products innovation and customer service."
BSE Ltd, the first ever stock exchange in Asia established in 1875 and the first in the country
to be granted permanent recognition under the Securities Contract Regulation Act, 1956, has
had an interesting rise to prominence over the past 137 years. While BSE Ltd is now
synonymous with Dalal Street, it was not always so. The first venue of the earliest stock
broker meetings in the 1850s was in rather natural environs - under banyan trees - in front of
the Town Hall, where Horniman Circle is now situated. A decade later, the brokers moved
their venue to another set of foliage, this time under banyan trees at the junction of Meadows
Street and what is now called Mahatma Gandhi Road. As the number of brokers increased,
they had to shift from place to place, but they always overflowed to the streets. At last, in
1874, the brokers found a permanent place, and one that they could, quite literally, call their
own. The new place was, aptly, called Dalal Street (Brokers' Street). The journey of BSE
Ltd. is as eventful and interesting as the history of India's securities market. In fact, as India's
biggest bourse in terms of listed companies and market capitalisation, almost every leading
corporate in India has sourced BSE Ltd. services in raising capital and is listed with BSE
Ltd.
Even in terms of an orderly growth, much before the actual legislations were enacted, BSE
Ltd. had formulated a comprehensive set of Rules and Regulations for the securities market.
It had also laid down best practices which were adopted subsequently by 23 stock exchanges
which were set up after India gained its independence. BSE Ltd., as a institutional brand, has
been and is synonymous with the capital market in India. Its S&P BSE SENSEX is the
benchmark equity index that reflects the health of the Indian economy. It also has a platform
for trading in equities of small-and-medium enterprises (SME). More than 5000 companies
are listed on BSE making it world's No. 1 exchange in terms of listed members. The
companies listed on BSE Ltd command a total market capitalization of USD 1.32 Trillion as
of January 2013. It is also one of the worlds leading exchanges (3rd largest in December
2012) for Index options trading (Source: World Federation of Exchanges).
BSE also provides a host of other services to capital market participants including risk
management, clearing, settlement, market data services and education. It has a global reach
with customers around the world and a nation-wide presence. BSE systems and processes are
designed to safeguard market integrity, drive the growth of the Indian capital market and
stimulate innovation and competition across all market segments. BSE is the first exchange
in India and second in the world to obtain an ISO 9001:2000 certification. It is also the first
Exchange in the country and second in the world to receive Information Security
Management System Standard BS 7799-2-2002 certification for its On-Line trading System
(BOLT). It operates one of the most respected capital market educational institutes in the
country (the BSE Institute Ltd.). BSE also provides depository services through its Central
Depository Services Ltd. (CDSL) arm.
The OTCEI was incorporated in October, 1990 as a Company under the Companies Act
1956. It became fully operational in 1992 with opening of a counter at Mumbai. It is
recognised by the Government of India as a recognised stock exchange under the Securities
Control and Regulation Act 1956. It was promoted jointly by the financial institutions like
UTI, ICICI, IDBI, LIC, GIC, SBI IFCI, etc.
The Exchange was set up to aid enterprising promoters in raising finance for new projects in
a cost effective manner and to provide investors with a transparent & efficient mode of
trading. The OTCEI is floor-less exchange where all the activities are computerised be it
trading, billing, payments, etc. OTC designated dealers operate through their computer
terminals which are hooked to a central computer. All quotes and transactions are recorded
and processed here. The dealers are spread over the country and have access to the central
computer. Besides, PTI OTC scan is available to each dealer which displays the best bids and
offers of the market makers in respect of each scrip. A transaction can be effected by entering
the bid or offer in a dealers computer counter. The exact transaction price along with other
details is also displayed in the counter computer.
Share Trading
Tips for share trading- The importance of discipline in share trading cannot be
over stressed. That is because in most cases, when people are making money, greed
makes them wait for more, and so they don't book profits. When prices fall, fear
makes them sell fast. These situations can be avoided if they know when to book
profit/loss.
If losses are not a deterrent and the market's roller-coaster movements give you a
high, here are a few habits and skills that can help you stay on the right track. These
are
useful
for
day
traders
as
well
as
positional
traders.
Discipline: The key to success is a stop-loss order. Stop loss helps a trader sell a
stock when it slides to a certain price. Suppose you buy shares of company A at RS
100 and set a stop loss at RS 95. When the price falls to RS 95 , the shares will be
sold automatically. This means you have limited your loss to RS 5. While entering a
trade, you should be clear about how much loss you are willing to accept.
Skill: Trading is a skill, a lot of amateurs in the market buy at a wrong point. A
skilled trader identifies such people and takes an opposite position to trap them.
Planning: One
should
identify
few
stocks
and
focus
on
them.
Minimum capital: Only those with a capital of at least RS 2 lakh can trade for a
meaningful gain. However, this capital should not be borrowed and should not be
part of your core savings. People can also trade with less, but volumes are
importants So, a certain Minimum capital is must.
Stock volumes: A stock should have enough volumes for it to be tradable. Accor.
For those just starting, trading Nifty-50 stocks is a good idea, he says.
Price range: What should you do with a share which has high volumes but not
much price movement? You should prefer shares with a minimum price range of
RS 10. This means the average difference between a stock's intra-day high and
intra-day low should be at least RS 10.
Timings: Look for the most volatile market timings. 9.30-11.30 am is a good time to
trade in Indian stock markets.
Volatility: Any stock with a positive beta of 1 or above is good. A beta of 1 means the
stock will move in line with the market. If the market falls 2%, the stock will also fall
2%. One can find a stock's beta in the trading software.
Supply-Demand: One has to know the supply and demand of individual stocks.
If the number of shares up for sale is more, one should not buy the stock, and vice
versa. To know if the sell quantity is more or the buy quantity is more, one cannot
rely on the bid and ask numbers available on the screen.
News Flow: Never trade on news which is out in the market. It takes a few minutes
for a stock price to adjust to any news.
Average out: When the price of a stock starts falling, people buy more to average
out. In trading, it's a strict 'No'. "As a professional trader, I would never average out.
It's a losing trade. The trade is going bad. I would rather wait for the right time to
enter again.
All trades are made up of separate orders, that are used together to make a complete trade.
All trades consist of at least two orders (one buy and one sell order), usually with one order
to enter the trade, and one or more orders to exit the trade. For example, if a trader expected
the market's price to go up, the simplest trade would consist of one buy order to enter the
trade, and one sell order to exit the trade.
Traders have access to many different types of orders that they can use in various
combinations to make their trades. The following explanations will explain each of the order
types, and how these orders are used in trading.
Market Orders (MKT): Market orders are orders to buy or sell a contract at the current
best price, whatever that price may be. In an active market, market orders will always get
filled, but not necessarily at the exact price that the trader intended. For example, a trader
might place a market order when the best price is 1.2954, but other orders might get filled
first, and the trader's order might get filled at 1.2956 instead. Market orders are used when
you definitely want your order to be processed, and are willing to risk getting a slightly
different price.
Limit Orders (LMT): Limit orders are orders to buy or sell a contract at a specific or
better price. Limit orders may or may not get filled depending upon how the market is
moving, but if they do get filled it will always be at the chosen price, or at a better price if
there is one available. For example, if a trader placed a limit order with a price of 1.2954, the
order would only get filled at 1.2954 or better, if it got filled at all. Limit orders are used
when you want to make sure that you get a suitable price, and are willing to risk not being
filled at all.
Stop Orders (STP): Stop orders are similar to market orders, in that they are orders to
buy or sell a contract at the best available price, but they are only processed if the market
reaches a specific price. For example, if the market price is 1.2567, a trader might place a
buy stop order with a price of 1.2572. If the market then trades at 1.2572 or above, the
trader's stop order will be processed as a market order, and will then get filled at the current
best price. Stop orders are processed as market orders, so if the stop (or trigger) price is
reached, the order will always get filled, but not necessarily at the price that the trader
intended. Stop orders will trigger if the market trades at or past the stop price, so for a buy
order, the stop price must be above the current price, and for a sell order, the stop price must
be below the current price.
Stop Limit Orders (STPLMT): Stop limit orders are a combination of stop orders and
limit orders. Like stop orders, they are only processed if the market reaches a specific price,
but they are then processed as limit orders, so they will only get filled at the chosen price, or
a better price if there is one available. For example, if the current price is 1.2567, a trader
might place a buy stop limit order with a price of 1.2572. If the market trades at 1.2572 or
above, the stop limit order will be processed as a limit order. If the market continues to trade
at 1.2572, the limit order will get filled at 1.2572 or at a better price if there is one available.
Stop limit orders may or may not get filled depending upon whether or not the market
reaches the chosen price, and then depending upon how the market moves. Stop limit orders
will trigger if the market trades at or past the stop price, so for a buy order, the stop price
must be above the current price, and for a sell order, the stop price must be below the current
price.
Market if Touched Orders (MIT): Market if touched orders are identical to stop
orders, except that they are used when the market price has already traded past the stop price,
and the trader only wants the order to be processed if the market price comes back to the stop
price. For example, if the market price is 1.3010, and the trader places a buy market if
touched order with a price of 1.3001, the order will only be processed if the market trades at
or below 1.3001. If the order is processed, it will be processed as a market order, and will get
filled at the current best price. Market if touched orders will trigger the opposite way than a
stop order, so for a buy order, the trigger price must be below the current price, and for a sell
order, the trigger price must be above the current price.
Limit if Touched Orders (LIT): Limit if touched orders are identical to stop limit
orders, except that they are used when the market price has already traded past the stop price,
and the trader only wants the order to be processed if the market price comes back to the stop
price. For example, if the market price is 1.3010, and the trader places a buy market if
touched order with a price of 1.3001, the order will only be processed if the market trades at
or below 1.3001. If the order is processed, it will be processed as a limit order. If the market
continues to trade at 1.3001, the limit order will get filled at 1.3001 or at a better price is
there is one available. Limit if touched orders will trigger the opposite way than a stop limit
order, so for a buy order, the trigger price must be below the current price, and for a sell
order, the trigger price must be above the current price.
rolling settlement in February 2000. Consequent on the review, SEBI added a total of 156
scrips under rolling settlement. Scrips that trade on any of the exchanges and had signed
agreements with both the depositories were included for compulsory rolling settlement from
March 21, 2000.
Following Finance Ministers announcement on March 13, 2001 that the
rolling settlement would be extended to BSE-200 list would be traded only in the
compulsory rolling settlement on all the exchanges from July 2, 2001. Further, SEBI
mandated rolling settlement for the remaining securities from December 31, 2001. SEBI
introduced T+5 rolling settlement in equity market from July 2001. Subsequently shortened
the settlement cycle to T+3 from April 1, 2002. After having gained experience of T+3
rolling settlement, it was felt appropriate to further reduce the settlement cycle to T+2
thereby reducing the risk in the market and to protect the interest of investors. As a result,
SEBI, as a step towards easy flow of funds and securities, introduced T+2 rolling settlement
in Indian equity market from 1st April
to be borne by the defaulter. Any shortage not bought in is deemed to be closed out at a predefined terms.
Research Methodology
TITLE: To DETERMINE THE
GROWTH AND DEVELOPMENT OF ONLINE TRADING IN INDIA
TITLE JUSTIFICATION:
The above title is self-explanatory. This study mainly deals with growth of online trading in
India since its inception in the year 2000.The trading volumes of stock exchange
has increased since then and the services offered by the online stock traders has facilitated
the Indian Customer. The level of Indian stock trading through online has been increasing
and provides a vast scope for the future.
SCOPE OF THE STUDY
Since the year 2000 a big boom has been witnessed in the Indian Stock Market
when the market showed the coming up of Online Trading System. Many online stock
trading companies came but i n i t i a l l y d u e t o l a c k o f o u t l i n e t r a d i n g s o m e
c o m p a n i e s v a n i s h e d a n d s o m e s u r v i v e d . T h e companies which survived are
getting the handsome returns also attracting the foreign Investment Companies. Nowadays
this sector is facing cut-throat competition and also provides huge growth prospects. The
study then goes to evaluate and analyze the findings so as to present a clear picture of the
trends in the online trading sector.
SIGNIFICANCE OF THE STUDY
The 100 people have been interviewed through various sources and their
responses have been analyzed. This data can be explorated to take in the trends all Indian
Online Stock Trading Industry. The significance for the Industry lies in studying the growth
trends that emerge from the study. It is one of the fastest growing and evolving sectors.
RESEARCH DESIGN
NON-PROBABILITY
The non probability respondents have been researched by selecting the persons who does
the stock trading. Those persons who do not trade in stocks have not been interviewed.
EXPLORATORYAND DESCRIPTIVE RESEARCH
The research is primarily both
exploratory and descriptive in nature. The sources
of information are both primary and secondary. The secondary data has been taken by
referring to various magazines, newspapers and journals online through the help of
the internet to get the figures required for the research purposes. The objective of the
exploratory research is to gain insights and ideas.
The objective of the descriptive research study is typically concerned with determining the
frequency with which something occurs. A well-structured questionnaire was prepared for
the primary research and personal interviews were conducted to collect the responses of
the target population.
3. Security is a vital and integral part of the design architecture. The hardware and
software elements should be built around layered security architecture and should be held in
place with a well-documented security policy.
4. Ideally online exchanges should have 'five-nine' availability.
5.It's difficult to deploy out-of-the-box applications at exchanges as each has a
unique architecture based on factors like operations flow, trading volumes, number of
members, number of users, and number of locations.
6. NSE has deployed NIBIS (NSE's Internet Based Information System) for realtime dissemination of trading information over the Internet and NEAT a client-server-based
application to help its operations.
7. BSE has deployed an Online Trading system (BOLT) on a Tandem platform
which has a two-tier architecture. It claims to be able to support up to 2 million trades a
day.
Provides with the Freedom of Information- The Internet provides a new sense of
controlling our financial future as the amount of investment information available
online is truly outstanding. An investor cana- Know the price of any stock he desires at any point time on internet.
b- An investor can review the price history of any stock in chart format online.
c- An investor can follow in depth the event happening in the market.
d- Helps an investor in receiving a wealth of free commentary and analysis about
stock market in the global economy.
e- Helps an investor to conduct an extensive financial research of any company he
desires.
f- He may also consult with other investors online present around the world.
Online stock broking companies provide real-time stock quotes, daily roundups of the
stock market, expert commentary, and a deep community of fellow investors.
2. Provides Control to Investors Money- When an investor wants to buy or sell stock
he no longer need to call his broker on the phone thus helping in the execution of the order
instantly on the internet.
4. Ensures the best price for investors- Some companies like Invest smart (IL&FS)
specialize in the techniques which offers the best price deals for the buy and sell orders of
the investors and traders providing the high level of transparency by displaying of
information relating to the specific stocks and company profiles which helps in getting the
best quote for the orders.
5. Online trading offers greater transparency- Online trading offers the investors
with greater transparency by providing with an audit trail. The process involves a complete
integrated electronic chain starting from order placement, to clearing and settlement and
finally ending with a credit into the depository account of the investor. All these stages are
inspected which brings the transparency into the system.
6. Provides hassle free trading- Online trading provides an integration of the bank
account, trading account and demat accounts, which leads to easy and paperless trading for
the client.
1. In online terminal, investor cant get customized expert advice, whereas in offline the
broker gives suggestions according to investors strategy (i.e. short term or long-term)
2. Brokerage is high compared to offline.
3. Privacy is less due to hacking scandals
4 .Transactional errors due to technical problems.
The investors need to educate themselves before investing in the equities. Whenever there is
a foul play in the market, SEBI has regulations to protect the interest of the investors.
The closure of a demat account takes a considerable amount of time i.e. 3-5 days
because the securities owned should be converted into cash.
The account holder must ensure that all the securities that have been held are sold off,
transferred to another account or rematerialised (the process of converting the securities in an
electronic form back into the physical form).
The account holder must submit the application in the prescribed format as specified by the
depository. The application form can be downloaded from the website of the depository or
DP. It can also be closed on the basis of a request letter submitted by the client to the DP on a
plain paper giving details of the account.
B) No
MUTUALFUND
EQUITY
INITIALPUBLIC OFFER (IPO)
COMMODITIES
FUTURES AND OPTIONS
(DERIVATIVES)
1.7 %
3.2%
2.3%
0.9%
0.7%
INTERPRETATION
The maximum amount
of persons trade online
to trade in equity. The
second preference is to
trade i n I P O i n
which about 2.3%
people do.1.7%
p e o p l e t r a d e o n l i n e t o d e a l i n m u t u a l f u n d s 0 . 9% d e a l i n commodities and
0.7% in future and options.
Q3- What is your opinion about the problem of market uncertainty in trading?
Q4- Does unsatisfactory services provided by the broking firm create problem in trading?
a) Yes
b) A little
c) No
Q4- Which charge do you consider charged by the broking firms is a problem in trading?
a) Broking charge
b) Undisclosed hidden charge
c) Annual maintenance charge
b)
c)
d)
e)
f)
Angel broking
India info line
Religar
ICICI
Others
LIMITATIONS
The various limitations of the study are here:
1-There is lack of awareness among people about investing in stock market. So the people
who are aware of such things were found in specific areas for survey purposes.
2-Most people are comfortable with traditional system in small towns and like to trade from
their respective brokers, hence not providing a true opinion of theirs.
3-Most of the people they are not aware of technology. Though Internet penetration is
growing still it is not at the required level.
4-Some of the respondents who did not do online trading were able to respond to only some
questions.
Account Type: Most brokers offer different types of accounts or plans to suit different
individual investors need.
Trading Account Opening Fees: The broker charges an account opening fee to open a new
share trading account. The Account Opening fees is generally different for different types of
account. This fees is nonrefundable.
Trading Account AMC: The broker charges an Account Maintenance Fee; also called
Annual Maintenance Fee (AMC) for trading account.
Demat Account Opening Fees: The broker charges Demat Account Opening Fee when the
new Demat account is opened.
Demat Account AMC: The broker charges Demat Account Maintenance Fee, also called
Demat Annual Maintenance Fee (AMC) for Demat account. The Demat AMC is charged
quarterly and in most cases automatically deducted from your account.
Equity Delivery Brokerage: Brokerages charged for buy and sell orders in the Cash
Segment when the transaction is settled by delivery.
Equity Intraday Brokerage: Brokerages charged for buy and sell orders in the Cash
Segment when transaction is Squared-off on the same day.
Equity Futures Brokerage: Brokerages charged for buy and sell orders in the Future
Trading.
Equity Options Brokerage: It is a contract, which gives the buyer the right, but not the
obligation to buy or sell shares of the underlying security at a specific price on or before a
specific date.
Minimum Brokerage Charges: The minimum brokerage charged by the broker for a
transaction.
From the above comparison of ICICI DIRECT PVT LTD and SBI SMART, we can infer the
following points.
Both ICICI and SBI SMART provide 3-in-1 accounts which links savings, demat and
trading accounts.
Both organizations provide online demo, online portfolio and after trading hour orders
for customers.
Both organizations provide email, toll free numbers for assistance.
ICICI DIRECT provides mobile trading and charting of stock and commodities.
In ICICI DIRECT Wide range of investment options are available under one portal.
It provides a low bandwidth website which works well where internet connection is
slow.
GTC (good till cancellation) and off-market hours order placement facility is very
useful.
ICICI Security charges high brokerage in comparison to most of the brokers, very high
'minimum brokerage' of Rs 35 per trade or 2.5% of the trade value
Poor performance of website is reported in peak hours of trading.
SBI SMART provides the facility of buying and selling of shares to NRIs also.
SBI SMART is online website based trading. Installable trading terminal is not
available. Good Till Cancelled (GTC) orders are not available.
ICICI DIRECT SECURITIES LTD: ICICI direct is an online trading and investment
platform for shareholders. It the largest stock broker firm in India providing a wide range of
investment options to the retail and institutional customers. ICICI Securities is part of ICICI
Group, India. Provisions like 3-in-1 online trading platform links banking, trading and
Demat accounts, ensuring unmatched convenience for customers. Share trading in both NSE
and BSE, innovative offerings like - Margin, Margin Plus, BTST, and SPOT are some
specialties of ICICI direct. Monitoring investments is as important as making the investment
itself. ICICI direct provides Portfolio tracker and watch list along with sms alerts that will
always keep customer updated on the status of their investments with Organization. Instead
of transferring money to a broker's pool or towards deposits, customer can manage their own
Demat and bank accounts when they trade through ICICIDIRECT.COM. It provides the
flexibility to pay only when customer trades.
SBI CAP SECURITIES LTD: SBICAP Securities Ltd (SSL) is a 100% subsidiary of SBI
Capital Markets Ltd which is one of the oldest players and has a dominant position in the
Indian primary capital markets. SBI Capital Markets Ltd. commenced broking activities in
March 2001 to fulfill the secondary market needs of Financial Institutions, FIIs, Mutual
Funds, Banks, Corporate, High Net worth Individual, Non-residential Investors and Retail
domestic investors. Services currently offered include Institution Equity, Retail Equity,
Derivatives, Broking, and Depository Participant services, E-Broking. SSL is registered with
the Securities Exchange Board of India for its various services. They also provide online
trading to investors & traders. The portal allows both Resident Indians and Non-Resident
Indians (NRIs) to invest. Trading with eZ-trade@sbi links all three accounts i.e. Bank
Account, Demat Account and Trading Account of a customer together. SBICAP securities
are now changed to SBI SMART.
ICICI DIRECT
SBICAP SECURITIES
(SBI SMART)
Type of broker
Support
exchanged
Account type
Full service
BSE, NSE
Full service
BSE, NSE
3-in-1
eZ-trade
Rs 975
SBICAP SECURITIES
(SBI SMART)
Rs 850
NIL
NIL
NIL
NIL
Rs 450
Rs 350
0.55%
SBICAP SECURITIES
(SBI SMART)
0.50%
0.275%
0.15%
0.05-0.03%
0.05-0.09%
Rs 65-95
Rs 50-100
0.050% - 0.030%
0.03%
Rs 95 - Rs 65 per lot
Rs 30
Minimum
Brokerage
Charges
Transaction Charges
ICICI DIRECT
Equity Delivery
Equity Intraday
Equity Futures
Equity Options
SBICAP SECURITIES
(SBI SMART)
NSE: 0.00386% | BSE: 0.00384%
NSE: 0.00386% | BSE: 0.00384%
NSE: 0.002206% (Rs 221/Crore)
NSE: 0.05515% (Rs 5515/Crore)
When a person buy share, trading account takes money from consumers Bank Account and
buys shares and stores it in his Demat account. When shareholder Sell shares, trading
account takes back the shares from Demat account and Sells them in Stock Market and get
back the money and that goes back to shareholders Bank account. Actually share holder
manually transfers it to Bank account from trading account most of the time
Conclusion
T h e o nl i n e t r a d i n g i s g r o w i n g w i t h a r a p i d p a c e w i t h t h e r i s i n g l e v e l o f
e d u c a t i o n a mo n g t h e customers. The other factors being that the Indian Investor
nowadays wants to deal himself in trading rather than depending upon other
middlemen. They also consider the factors like timesaving in doing the online
transactions, convenience etc. Although some people feel that online trading is not
secure but the people doing the trading online is happy about the increasing security
concerns among the companies. The year 2008 has not been so good for the stock
market and the Sensex and Nifty has been dipping and affecting the business negatively for
these companies. This is due to the fact that at these times people do not prefer to open the
DMAT and Trading accounts. So the companies have to reduce their account opening
fees to attract more and more customers. Also people trade very less in the bearish
market and the companys profits against brokerage fees soars downwards. It is also a
found fact that during the bearish market the ratio of online trading becomes
very less. Also there is an intense competition among the companies and the
companies come up with new and new promotion schemes such as discounted and
negotiable brokerages, Zero balance accounts, waiving a/c opening fee and AMC etc. As the
internet penetration is growing in India this business holds a huge potential for
growth.
The mantra for success in the current situation will be educating the customers
about the benefits of online trading and the amount of ROI that can be generated
through it.
The total trading volume of brokerage companies has increased from US$1239.1
billion in 2004 to US$1492.1 billion in 2005, and is expected to reach US$6535.7
billion by 2015.