20-12-2012, 01:31 PM
ONLINE SHARE TRADING PORTAL
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Why invest?
If you were to open a book on economics and look up the word “investing”, chances are that you would find the following definition: “Investing is building up to meet future consumption demands with the intention of making surpluses or profits, as they are popularly known.”
And after reading it, the last trace of your eagerness to invest is likely to evaporate.
But investing is essential. Here is why…
While the life expectancy of the average human being has increased, we are productive only between the ages of 30 and 60 years. Hence the short time span that we are able to earn money needs to provide for our future when we may not be capable of earning.
Everything being the same, we could keep away a part of our earnings every year (save) that will come in handy when we will not be able to earn. However inflation destroys the value of what we save. A sum of Rs10,000 saved this year will not have the same purchasing power ten years down the line. Hence we need to preserve the purchasing power of what we save.
The only way to hedge inflation is to invest in shares, debentures, bonds, gold or real estate, to earn returns from these assets that compensate for the decline in our purchasing power.
What is a share?
“Share” or “Equity” represents part of an ownership of a business. So as a shareholder you own a piece of the action that happens in that business. Why would you want a piece of the action? For the rewards of course. As a shareholder you have a right over the profits generated by your business. Your company might pay out the profits generated every year as dividends or it may retain the profits to further grow them.
There’s another way you as a shareholder can make money. If your company does well, then its shares listed on the stock market become more valuable and the stock price appreciates. On the other hand, the company might perform badly. Then not only do you not get dividends but the stock price also declines. Hence investing in shares is a risky proposition.
When you invest in shares, you can expect certain returns based on the fundamentals of a business. However you have no control over it. What you have control over is managing risks associated with it.
INDIAN SECURITIES MARKET
Introduction
Securities market has essentially three categories of participants, namely the issuer of securities, investors in securities and the intermediaries and two categories of products, namely the services of the intermediaries, the securities including derivatives.
The securities market has two interdependent and inseparable segments, the new issues (primary market) and the stock (secondary market). The primary market provides the channel for sale of new securities while the secondary market deals in securities previously issued.
History
1850 – Shares of banks and securities of East India Company traded in Mumbai under a sprawling banyan tree in front of Town Hall, which is now in the Horniman Circle Park.
1875 – Brokers organized an association known as the Native Share Brokers Association, and the country’s first stock exchange the Bombay Stock Exchange (BSE), set up in Mumbai with 318 members. The membership fee gradually increased from Re 1 in 1887 to Rs 1,000 in 1896, and Rs 48,000 in 1920.
Changing Trend
Remember the time when you left orders with your broker in the morning and received a confirmation fax late in the evening?
You wondered whether you had acquired the shares at the best possible price for the day. Today, the picture is different. Imagine a scenario where you log on to your account, get the live quotes of scripts you are interested in, get advise from experts and research reports on your investment choice and then just click the mouse to place your order, pay the amount due (which automatically gets debited into your account with the on line brokerage firm), get your account statement, and the delivery of your shares into your Demat account. All this through just one click of a mouse. Seems like a dream? But with online trading this has become a reality. A few seconds later, you get the confirmation on your screen. And after the trade settlement, your bank and DP accounts will reflect the changes accordingly.
What is a Depository?
A Depository is a Company where the shares of an individual are held in the electronic form, at the request of the shareholder. This eliminates the physical form of holding.
The National Securities Depository Limited (NSDL) was promoted by IDBI, UTI, SBI and NSE.
The Central Securities Depository Limited (CDSL) was promoted by BSE
What is the Depository System?
Your money may be held in the form of liquid cash at your home or may be deposited in a bank. The bank holds your funds in the electronic form and subsequently debits or credits the account. Depending on your issuance of cheques or deposit of cheques. The advantages of safety and convenience of dealing with a Bank overweigh the reasons for holding liquid cash in your home. Your financial assets such as Equity Shares may be compared to the above example. You may hold physical share certificates in your home and be exposed to the various risks of lack of safety, mutilation, loss etc. Alternatively, person may deposit your shares in an organization called a Depository, which holds your shares in the electronic form.
Offline Trading System
As the internet has taken over the physical trade, the same is the situation in trading in shares. Even the internet has not spared trading in shares and still the conventional system of offline trading continues in today’s world.
What is meant by Offline trading?
In offline trading system, two parties i.e. an individual and a broker come into contact with each other and the transaction takes place. The investor goes to the broker for the purpose of buying or selling of securities and for that he has to make a payment to settle the transaction.
Here both the parties would be facing some risk. Brokers would be facing the risk of default. In a typical situation, a customer would be allowed to trade on margin, either by way of transferring it to trade account with the broker or giving the broker authority to keep a hold on his bank or depository account till the time of settlement.
If the margin goes below the specified limit, the website of the broker would give warning to the investor to replenish the same. Brokers can either ask for blanket permission/power of attorney from the customer to replenish the same or take risk on that, in which case they may also square off the contract.