Stock Marketing-3: Investment Process & Pre-requisites for Online Trading

Investment Process

Investment involves various processes to be followed:

• define investment policy by planning our savings, investment to be done & time of return expected.
• gain knowledge & risk about the financial market where we are going to invest.
• analyze the market, industry, & company where we are going to be investing; to know about the history & profitability of the company or sector where we are going to invest.
• identification of the valuation of the company where we have invested (intrinsic & future value).
• portfolio construction means constructing a portfolio of a variety of companies (diversification).
• portfolio evaluation of our portfolio (appraisal/revision of portfolio).

Requirements for Stock Trading

• DEMAT Account (Dematerialised Account): an account that allows us to electronically hold company shares & securities. It will be opened with a stockbroker (associated with a stock exchange). We can hold dematerialized securities such as stocks, mutual funds, bonds, ETFs (exchange-traded funds), etc. Types of DEMAT Account
• Regular DEMAT account: for investors who reside in India.
• Repatriable DEMAT account: for NRIs (non-resident Indians).
• Non-repatriable DEMAT account: for NRIs, we cannot transfer funds abroad.
• To open a DEMAT account one needs following: a PAN Card (for identity proof), any address proof (passport, driving license, voter ID, Aadhar Card), income proof (bank account statement of last 6 months, ITR statement, 3 months salary slip), signature on white paper (same as that on PAN card), bank proof (cancelled cheque, passbook statement of last 6 months), a photograph.
• Trading Account involves funds transferred from Bank account to buy/sell the shares.
• Bank Account

 Online Trading

It is a method of buying & selling of financial instruments like Equities, Bonds, NCDs, Derivatives, Stocks, ETFs, etc. through an online trading platform. Steps to start online trading:

Step-1: Find a stockbroker: they provide us with the facility to open a demat & trading account. Some popular broking firms are: ICICI Direct, HDFC Securities, iPaisa.com, SBI Securities, etc.

Step-2: Open a DEMAT & trading account: this is the starting point to invest in the secondary market. Both of these accounts should be linked to a pre-existing bank account for a seamless transaction.

Step-3: Selection of shares: Log into our trading account & choose the shares we want to sell or buy. Ensure that we have the requisite amount of funds in our account to purchase those shares.

Step-4: Select the price point: Decide the price at which we want to buy or sell the share. Wait for the seller or buyer to reciprocate that request. 

Step-5: Complete the transaction: Once the transaction is completed, we receive either shares or money for the stocks that we have traded. 

Platforms for Online trading: Zerodha, 5Paisa, Upstox, Angel One, Groww, Paytm Money, ICICI Direct, HDFC Securities, etc.

Benefits of Online Trading

• it is faster, cheaper & convenient.
• we can monitor our investments anytime & anywhere.
• eliminated the need for a middleman.
• an investor has greater control.

Trading Procedure on a Stock Exchange

1. selection of broker
2. opening of DEMAT account
3. placing the order
4. match the share & best price
5. executing order
6. issue of contract notice
7. making payment 
8. settlement cycle (approx. T+1 days)
9. delivery of shares 
10. delivery of shares in DEMAT form

A settlement cycle refers to a calendar according to which all purchase & sale transactions done on T day are settled on T+1 basis (Trading day & next consecutive working day).