Indian Stock Market Trading And Settlement Process

With the global markets and Indian equity markets reaching stellar heights, you would wish to participate in the rally and gain profits. It is always good to have access to a secondary source of income and earnings from our professional work. However, you need to take many primary steps to achieve this objective.

Steps to the equity stock trading and settlement process using an online trading account

  • Opening an account: You cannot directly trade with your regular account. For trading, first, open trading account with an online broker. After this first step, you can commence your online stock trading career and undertake online investing. An online trading account can be opened by an individual/partnership/company or a bank
  • Documents required to open an online trading account:
    • Identity proof
    • Address proof
    • Two photographs
    • Application form for opening trading/Demat account with an online broker
    • A cheque for margin deposit
    • Cancelled cheque of the bank, which will be used to make payments and receive incoming receipts; this account will be linked to your trading account.
    • It is mandatory to link Pan and Aadhaar with your trading and Demat account.
  • All equity shares purchased by you will be stored in electronic form with the depository. Your holdings of equity shares, mutual funds and other securities can be easily seen when you access your holdings statement in the Demat account. Your Demat accounts are linked to one of the two national depositories. The two depositories are National Securities Depository Limited and Central Depository Services Limited.
  • Placing an order to buy or sell shares: You can place an order to purchase or sell shares through your online stock trading account. Your order must be very clear. For instance, “Buy 100 shares of ABC Company at Rs ZZ.” Always remember to place a stop-loss limit with your order. The broker receives your order and executes the same electronically through the Stock exchange and sends you a contract note, which gives all your order details, including brokerage and statutory taxes and exchange fees.
  • Settlement is the last step in the order execution process. It marks the phase when you pay for your purchase and receive delivery of the equity shares purchased from the seller. This happens seamlessly when you undertake online stock trading through an online account. The transaction date is always the same and is symbolised by the letter “T.” The ultimate settlement does not always take place on the same day. T+2 is the standard settlement day.
  • Stock market trade settlements are classified into two types:
  • Spot settlement: That is when the settlement is completed immediately after the T+2 rolling settlement concept is used.
  • Forward settlement: You use forward settlement when you agree to pay for the deal later, such as T+5 or T+7.
  • After the trades are completed, the clearinghouse National Securities Clearing Corporation Limited matches buyers and sellers with individual trades. This process is known as clearing.
  • The last step in settlement happens in the case of spot settlement on T+2 when pay-in or payout happens. If you are the buyer, you pay in the funds required for the purchase. The seller’s depository releases the shares to your broker. A matching transaction happens where your payments are matched against the receipts of equity shares from the seller or vice-versa.
  • The final stage is when the ownership title is transferred to your name, and the equity shares purchased by you are received into your Demat account by your depository.

The date on which shares are transferred to your broker after selling the shares is called the pay-in date. The day the buyer who has purchased shares from you receives them from the broker is called the payout date.

Key takeaways

Online stock trading has become very easy and cost-effective with the existence of online brokers. Also, equity shares being held electronically in Demat accounts with depositories have further simplified the process. Previously, stock purchases and sales were very cumbersome and laborious when share certificates were held in physical form. Online investing has made life very easy for internet-savvy millennials. So get set to start your online stock trading today and use online investing for long term wealth accumulation.