Stock trading begins with opening a trading account through a registered broker. If you plan to trade equities, you also need to open a demat account, which holds your shares in electronic format. Once your account is verified, the broker assigns you a trading code, enabling you to buy and sell shares through the trading platform.
Your trading account is linked to both your bank account (for fund transfers) and demat account (for share transfers). All financial and share-related transactions are processed through these linked accounts. You can place orders online through internet-based trading platforms or offline through a broker.
Five Key Facts About Stock Trading
Traders vs. Investors
Traders seek short-term opportunities and frequently buy and sell stocks to take advantage of market fluctuations.
Investors, on the other hand, focus on long-term wealth creation, holding stocks for months or years based on fundamental value.
Placing a Trade
To execute a trade, you need to place an order specifying the stock, quantity, and price. This can be done either through your broker or via an online trading platform.
Once the order is matched and executed, it becomes a trade, forming a legally binding contract between you and your broker.
Profits and Losses
If you sell a stock for more than its purchase price, you make a profit.
If you sell it for less, you incur a loss.
Profits add to your trading account balance, while losses reduce it. Note that profits from trading are taxable as per applicable laws.
Costs Involved in Trading
Trading isn’t free. You incur several charges:
Brokerage fees for transaction execution
Statutory charges like:
Securities Transaction Tax (STT)
GST
Stamp Duty
SEBI Turnover Fees
Exchange transaction charges
All costs are itemized in the contract note issued after a trade.
Margin Requirements
If you opt for delivery-based trades, you must pay the full value upfront.
For intraday trades, brokers often offer leverage (usually 5–6x), allowing you to trade with more capital than you actually hold.
Futures and options (F&O) trading also requires margin payments, as mandated by the exchange.
3 Interesting Facts About Stock Trading
The stock market infrastructure today is highly regulated and secure, offering a reliable environment for trading.
Trade Settlement is Guaranteed
All trades executed on recognized stock exchanges are guaranteed by the clearing corporation.
Even if the counterparty defaults, the exchange ensures settlement, protecting you from counterparty risk.
Risk Management Through Margins
Exchanges use a multi-layered margin system to manage trading risks:
Initial Margin to start the trade
Special Margins during volatile conditions
Mark-to-Market (MTM) Margins to cover daily price fluctuations in F&O contracts
Volatility Controls and Safety Mechanisms
Exchanges monitor and manage volatility using measures like:
Transferring highly volatile stocks to the Trade-to-Trade (T2T) segment, where no intraday trading is allowed
Imposing circuit filters that cap price movement, sometimes reduced from 20% to 5% for specific stocks
These mechanisms help limit risk and protect traders from extreme price swings.
Conclusion
Stock trading has become more accessible, secure, and regulated than ever before. Understanding how it works—right from opening an account to managing costs and risks—is crucial for anyone looking to participate actively in the markets. Whether you’re a trader chasing short-term gains or an investor building long-term wealth, having a solid grasp of stock trading basics is essential for success.
