“90% of the people in the stock market, professionals and amateurs alike, simply haven’t done enough homework.”
- William J.O’Neil.
It’s time for you to answer a very important question. Do you know what is a stock exchange? Hardly 2% to 3% of our citizens invest in equity. Most of them do not know what a stock exchange is. It’s time to be different from the crowd. A Company issues shares and lists on the stock exchange. The stock exchange is simply a place, where shares once issued, can be bought and sold by you and other investors. A stock exchange is all about liquidity. You can sell the shares of the Companies you hold, or even buy more shares of the Company. You can do this anytime, the stock markets are open.
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National Stock Exchange also called NSE, is a leading stock exchange in India. It is located in Mumbai and was established in November 1992. It is the first electronic trading platform in India. In April 1993, NSE was recognized as a stock exchange in India. NSE has a fully automated electronic screen based trading system, which makes trading (buying/selling) of shares, really easy. NSE has more than 1600 Companies, listed on it.
NSE is an electronically enabled stock exchange. You and other buyers, enter your trades (shares you wish to buy), on the trading terminals of your broker. Your trades are then transmitted, across the entire trading network of the stock exchange. It is compulsory for you to deal with a registered stock broker, if you want to buy/sell shares on the NSE. The electronic system then matches the buy order, so that your buy order is executed, at the price you specify or lower. If your buy order is higher than other investors, it is matched first.
What if you want to sell shares on the NSE? You and other sellers, enter your trades (shares you wish to sell), on the trading terminals of your broker. Your trades are then transmitted, across the entire trading network of the NSE. The electronic system of the NSE, then matches the sell order, so that your sell order is executed, at the price you specify or higher. If your sell order is lower than other investors, it is matched first. When you buy or sell shares on the NSE, your identity is kept a secret. This anonymity you enjoy, is the key to a successful trade on the NSE.
What happens if your order (buy/sell trade), is executed at the same price as another investor? If your order (buy/sell trade), is executed at the same price as another investor and if your order has been placed first, then your order gets executed first.
You want to buy shares which are listed on the NSE. You are expected to give the money (keep the money ready), for buying these shares. If you are selling shares, you need to keep them ready for delivery. This is known as the pay-in process. After the pay-in process, you have what is the pay-out. Pay-out is very simple. If you buy shares listed on the NSE, you are given these shares. If you sell shares, you get the money for these shares.
This process of exchanging money and shares, is called settlement. A clearing corporation takes care of the settlement process. The National Securities Clearing Corporation Ltd (NSCCL), is the clearing house of the NSE. The clearing house is nothing but a counterparty, to avoid any defaults. It functions as a buyer to the seller and a seller to a buyer. The clearing house collects money from you, called margin money, to avoid any defaults. If you default (do not pay for the shares you buy), NSCCL uses the margin money you have provided, to settle your commitments.
Let’s end this article on an interesting note. NSE plans to list on a stock exchange and could soon issue an IPO. Your dreams could come true. NSE could become part of your portfolio. Be Wise. Get Rich.
Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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