Have you ever thought what happens after you have placed the trading order. Is there any process or as soon as you place the trading order the transaction is complete. Trading is buying and selling the shares of a company. The process by which trading is done is called as a trading cycle. In this video we will guide you to Buy and Sell Shares in the Stock Market.
In simple terms a trading cycle is a process of trading, clearing and settlement of the shares of a company. Now let us now how the trading, clearing and the settlement makes a trading cycle.
• Trading – Under trading you decide which shares are you going to buy and then you place the trading order. Trading takes place when the money gets debited from an investors account. Suppose you have decided to buy 100 shares of Reliance this decision you make after studying the past few years performance of the company. Then you place buying trading order from your account and the money gets debited on Monday, remember money gets debited on Monday.
• Clearing – Once that the investors has confirmed the order and the trading part is done this order goes to the clearing house that acts as a bridge between company for ensuring smooth transaction flow. In India there are 2 Clearing corporation i.e. NSDL and CDSL. So the NSDL and CDSL are the financial organizations formed for handling the securities in the dematerialized form. This system was developed to keep the stocks in electronic form. These two-depository organization are responsible for the safe transactions of securities from one account to another. They are regulated by the SEBI so that no fraudulent activities take place.
• Keeping in mind the Reliance example after the shares are sent to the clearing house, it will be the clearing house that matches the buying order to see if there are any sellers existing to sell the shares at which buyers want to buy it.
• After the matching process is done the clearing house will transfer the securities from the sellers to the buyers and the funds from buyers to the sellers.
• Settlement – In India we follow T+2 rolling settlement date, this means settlement takes place in two working days after the clearing house confirms the transaction. So keeping in mind the Reliance, we had placed the buying order on Monday so then the securities will be credited on Wednesday to your Demat Account i.e. after 2 working days.
So, this is how the seamless process of Buying and Selling of shares takes place with trading, clearing and settlement processes. The entire process is done electronically for quick processing of transaction. This entire process makes the transaction effortless for the investors as well as for the companies and the shares are transferred from one account to other smoothly.
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