What needs to be done to be able to start trading in share market in India? Most of the Indians are not aware of trading, but few of us know that you need to buy shares of a company and then if the prices go you can sell them and get some profits.
So it seems quite logical that one might need some account to do trading , but how to get such an account ? Who provides such accounts ? What are the charges involved and legal issues?
To get started with the Share market trading , All you need is a Trading + demat account , Below picture explains how this mechanism works
Trading account is an interface between your Bank account and your Demat account .You can link as many as three bank accounts with your trading account
Demat Account : Account where your Shares are stored in electronic form .
Trading Account : An account which is used to place orders for Buying and Selling of shares .
when you buy something , Trading account takes money from your Bank Account (Its already taken from your Bank account and saved in Trading account .you should do this manually) and buys shares and stores it in your Demat account .
When you Sell something , Your trading account takes back the shares from your Demat account and Sells them in stock market and get back the money and that goes back to your bank account (actually you manually transfer it to bank account from Trading account most of the times )
There are different brokers as well as banks who provide Demat cum trading accounts .some are listed below
- Axis Direct
- ICICI direct
- HDFC Securities
- Zerodha ( I own my trading account with Zerodha as they are the best discount broker who charge just 20Rs per trade and provides the best customer support)
Charges Involved :
All you need to pay is just Rs. 300 to open a Trading and Demat account. Once the account is activated, you will be given login credentials.
Now when you buy some x shares of ABC company ,you get confirmation mail from your broker at the end of the day saying that these shares are bought at this specified amount.now you own these shares as you have already paid for these shares. The company would charge you just Rs.20 or 0.1% of the transaction value whichever is lower, i.e if you buy 1 TCS share which Rs. 2500, then you have to pay just 0.1% of Rs.2500 which is just 2 Rupees 50 paise.
Before you do open an account ,my suggestion would be to invest atleast two months on learning basics of stock market investing and then jump into awesomeness .As the saying goes , “Unless your money is at stake , you would never learn the nuances of stock market (or) investing”
Trading Segments for Doing Intraday Trading in India
In India, you can do intraday trading in Equity, Equity Derivatives (also called Equity F&O), Currency F&O and Commodity F&O.
#1. Equity Intraday Trading in India
Intraday trading in equity involves buying and selling stocks without the intention to hold the shares for more than a day. You need to square off the trade before the close of the day’s trading session (before 3:30 pm).
Generally, your broker will ask you to square off all your open intraday trades by 3:20 pm to avoid any trade getting left out.
You can do intraday trading on shares of known companies listed on BSE and NSE.
You should pick stocks that are highly liquid, which means there are continuous trades happening for that particular share. This is because you will always have a buyer and seller available for trading when you go to day trade.
Intraday trades are not allowed on stock banned by the exchanges because of price manipulation. They are categorized as “T” group shares. You should avoid doing intraday trading on banned shares at any cost because they have sudden abnormal price movements.
#2. Equity Derivatives Trading in India
Equity derivatives are available for intraday trading consist of futures and options (known as F&O) on underlying stocks.
Futures and Options instruments are available on highly liquid stocks. They are selected by stock exchange from the list of top 500 stocks with high market capitalization and traded value.
They are complex instruments, which I will cover in detail in another article.
#3. Currency Derivatives Trading
In India, you can trade in currency derivatives on NSE, BSE and MSE (Metropolitan Stock Exchange). The currency market opens at 9 am and closes at 5 pm.
You can trade in currency futures and options and all the trades are cash-settled in Indian rupees.
In India, you can trade-in only four currency pairs.
- Rupee-Dollar (INR-USD)
- Rupee-Pound (INR-GBP)
- Rupee-Euro (INR-EUR)
- Rupee-Yen (INR-JPY)
The rest of the currency pairs are not allowed for trading on stock exchanges by RBI.
#4. Commodity Trading in India
You can intraday trade in commodity F&O on commodity products like metals, energy products like oil & gases and agro-based commodities.
The exchanges where you can trade commodity F&O are MCX, NCDEX, ICEX, NMCE and ACE. Out of which MCX is the biggest platform.
Agro-based commodities can be traded between 9 am to 5 pm where the trading time for non-agricultural commodities is between 9 am to 11:30 pm.
Terms Used While Doing Intraday Trading in India
Basic terms associated with intraday stock trading that you should know are under.
Margins are also called leverage in day trading. They help you trade larger volumes by keeping a small amount of money.
For example, If you want to buy 1000 shares intraday worth Rs. 100. You will need (1000 shares x Rs. 100 per share) = Rs. 1,00,000 in your account.
Let’s say you have only Rs. 20,000 in your account but your stockbroker is ready to provide the rest of the 80,000 rupees to complete the trade worth Rs. 1 Lakh.
This means your stockbroker has provided 5X margins. You have a leverage of 5 times on your money.
#2. Limit Order
Limit order helps you buy or sell stocks at a specific price that you are willing to trade. The trading platform will send your limit order to the stock exchange marking your specified price.
For example, the current market price of TCS shares is Rs. 1680. You already have some TCS shares and you want to sell them at Rs. 1690.
In such a case, you can enter a limit order specifying your stockbroker to sell TCS shares at Rs. 1690.
#3. Market Order
Market orders are the current trading price of a stock. When you place a market order for a liquid stock then the buying/selling will happen immediately at the best price available.
For example, below are the pending buy and sell quotes for ITC shares.
All the BID quotes for ITC shares along with quantity (on the left) are placed by the buyers. If you want to sell ITC shares then the market order (best available price) will be Rs. 178.65 and the quantity available is 3891 shares.
All the ASK prices (on the right) are placed by sellers who are ready to sell ITC shares at their given prices. You can buy 260 ITC shares immediately at Rs. 178.75 by placing a market order.
#4. Stop Loss Order
Stop-loss order protects you from the risk of continuing a loss trade. Let us understand from the example below.
Suppose, you have bought Reliance shares at Rs. 1100 for intraday trading. Naturally, you will want to sell them higher, let say at Rs. 1108 and book profit.
But due to adverse market movements, the share price starts to decline and is trading at Rs. 1098. Which means, at the moment you have an unrealized loss of Rs. 2 per share. The price can move down further to Rs. 1090 creating more losses.
The above loss situation can be prevented by placing a stop-loss order at Rs. 1097. When you do that, the Stop loss order gets executed at Rs. 1097 booking a loss of Rs. 3 per share. But the stop-loss order protected you from making further losses.
#5. MIS (Margin Intraday Square off) Order
MIS orders are intraday orders that need to be closed (squared off) before the end of the day’s trading.
Most stockbrokers square off your open MIS trades at around 3:15 pm unless you convert the outstanding MIS order into delivery orders.
#6. Bracket Orders (BO)
Bracket order removes risk elements in intraday trading. The Bracket order is designed to lock your profit and losses by creating a price bracket on both sides.
The system places a target profit order and a stop-loss order as brackets simultaneously with the original buy/sell order. For example, you want to place a buy BO order for Cipla that is currently trading at Rs. 460.
The system will place three order simultaneously as below
- Buy order at Rs. 460
- Target profit order at Rs. 467
- Stop Loss order at Rs. 456
Of course, you will have the option to set the target and stop-loss price but all the three orders will be launched simultaneously under the Bracket Order.
#7. Cover Orders (CO)
Cover order is a risk-mitigating order in which a stop loss is placed simultaneously with the original buy/sell order.
For example, if you want to place an intraday buy CO order for HDFC Bank shares that are currently trading at Rs. 860.
The trading platform will enter both the buy order (at Rs. 860) and a stop-loss order (at Rs. 857) simultaneously to cover your original buy order. You have the flexibility to set the stop-loss orders within the range allowed by your stockbroker.
Know Your Trading Platform for Doing Intraday Trading
You will receive your user ID and password immediately, once you are done with the demat and trading account opening process.
Next, you need to visit the trading website (details can be found form the welcome kit or email) of your stockbroker.
Enter your ID and password to view the trading screen. Initially, the screen will be blank without showing any shares. Few of them may have live Sensex and Nifty prices.
I am going to share every detail like how to place your trade, how to buy or sell shares, setting watchlist. I used Upstox platform to show these details.
If you are a newbie, then I would suggest you to open FREE Upstox account from this special link. So that, you wouldn’t need to learn the information for starting intraday trading.
You would find various options on your trading platform that you need to explore.
Depending on your stock broker, the trading platform might have different features. But the above features will be available with all the trading platforms.
#1. Balance Check & Option for Money Transfer
You can not trade unless you have money in your trading account even though your stockbroker has linked your savings bank account. You need to transfer money from your bank account to your trading account.
The “Balance” tab also shows your net fund position and the margins used.
Click on the “Add funds” tab to transfer money into your trading account.
#2. Sensex and Nifty Tickers
The stock markets (BSE & NSE) tickers help you gauge the broad market movements while you trade individual stocks and other indexes.
The ticker prices reflect the overall market sentiments and are a good indicator to gauge the direction of the market. This is important because generally with falling markets most of the stock prices will also fall and vice versa.
#3. Creating Watchlist
Watchlist gives you a quick glance at the prices of your favorite stocks in one place. You can add all the shares to the watchlist that you intend to track.
Click the “+” button to open the search bar, then you can type the name of the stock and add it to the watch list. Below is the example to add Cipla stock.
When you add CIPLA to the watchlist you can instantly view the price charts.
#4. Order Book
The order book will contain details of all the orders that you have placed during the trading hours. The book will also tell you the status of your orders whether they have been executed or failed.
#5. Position Book
The position book reflects all your outstanding trade positions and the mark-to-market (MTM) position of the open trades.
MTM is the unrealized profit or loss status of your trade with respect to the current market price of the stock. For example, if you have purchased ITC shares at Rs. 180 and the current price is Rs. 182 then you have a positive MTM of Rs. 2 per share.
Whereas, if the stock price is Rs. 177 then you have a negative MTM of Rs. 3 per share.
#6. Holdings Book
The holdings will show only the delivery shares that you have purchased for the long term.