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Everything About the Settlement Process in The Indian Stock Market

For making a transaction in the Indian stock market, firstly, you will have to create a Demat (Dematerialisation) account. After getting it verified, you will be able to do buying and selling of securities in the secondary stock market. After making your first transaction, you will receive a contract note, indicating that your transaction has been settled. Let's talk more about the settlement process in the stock market for a better understanding. 

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People think that buying and selling N number of shares of some company is called stock market trading. However, stock market trading is a wider concept that needs to be understood very carefully. If you wish to invest in the Indian stock market, then you should know all the crucial details about it. 

For making a transaction in the Indian stock market, firstly, you will have to create a Demat (Dematerialisation) account. After getting it verified, you will be able to do buying and selling of securities in the secondary stock market. After making your first transaction, you will receive a contract note, indicating that your transaction has been settled. Let’s talk more about the settlement process in the stock market for a better understanding. 

How does a trade settlement take place in the Indian Stock Market? 

It is just a two-way process. First, when a buyer shows their interest in some securities and makes a transaction to buy it, and second when the actual transfer of securities from the seller to the buyer takes place. The second one can only be done once the seller receives the actual amount. As ownership of securities gets transferred, we can say that the process is completed.

Here is an important thing to remember, ‘T’ in the stock market describes the day on which the transaction has been made. The actual settlement doesn’t take place on the transaction date. Later, it is denoted as T+2 for the extra two days of the final settlement and actual transfer of ownership. 

Why T+2?

Earlier, when the stock market used to regulate physically, the settlement period was 5 days,  and the term for that was T+5. The reason was the time involved in the transfer of the certificate to the buyer or the delay in the realization of the cheque. But now, when everything is online, the settlement period has been limited to only two days by the regulators of the stock market, and we call it T+2 days. 

Types of settlement processes 

There are mainly two types of settlement processes in the Indian stock trading market, both of them are as follows: 

  1. Spot settlement:  The spot process is based on the rolling settlement principle(T+2 days). Hence, in this process, the settlement takes place with the immediate effect of transfer of ownership from the seller to the buyer within a maximum period of two days. 
  1. Forward settlement: This settlement can only be placed if the buyer has no issue with getting paid in more than two days. For instance, the settlement period can be T+5 or T+7. 

Different exchanges follow different settlement systems. 

As the stock market is growing and becoming more volatile, it’s giving more opportunities to traders to make money on a daily basis. One such method of trading securities is intraday trading. 

What is Intraday trading? 

Intraday trading involves making transactions of securities within a day. For instance, buying some shares of a company in the morning when it was low priced and selling it when you observe that the price is not going to increase anymore. Intraday trading has very low margin profits, yet it can help traders in making money every day. 

However, it is not an easy task, and not everyone can make money using this trading method. One should have every vital information related to intraday trading to make good money. The first thing that one needs to know is how to choose stocks for intraday. Being an intraday trader, you cannot just put your money on random securities; you will have to be more selective and calculated before making a final choice. 

Conclusion

The secondary market is prospering every day in all the countries, and India is nowhere behind. The Indian stock market regulators have made it very easy for investors to invest in securities. New trading methods are also coming into existence, which is giving opportunities to those who don’t wish to invest their money for the long term. 

SMEStreet Edit Desk

SMEStreet Edit Desk is a small group of excited and motivated journalists and editors who are committed to building MSME ecosystem through valuable information and knowledge spread.

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