broking basics
TRANSCRIPT
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Title
Introduction
to Broking
Last updated: 15/02/2010
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Investment
Money earned is partly spent and the rest
saved for meeting future expenses.
Investing money to get return on it in the future
is Investment.
Inflation: Rise in the general level of prices of
goods and services in an economy over a
period of time.
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Investment OptionsPhysical Assets Financial Assets
Gold/ Jewellery Fixed Deposits
Real Estate Small SavingsInstruments (NSC)
Commodity Public Provident Fund
Pension Fund
Insurance
Bonds/ Debentures
Shares/ Equity
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The Risk & ReturnInvestment Type Risk Return
Gold/ Jewellery Low Moderate
Real Estate Low Moderate
Fixed Deposits Low Low
Small Savings Instrument Low Low
Public Provident Fund Low Low
Pension Fund Low Low
Mutual fund Moderate* Moderate*
Commodities High High
Equity Market High High
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Investment Instruments ReturnSaving Account 3%
Fixed Deposit 7%Insurance, MF, PPF, NSC etc 10%Equity 20%Commodity 16%Gold 4%
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Why Equity?
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LONG TERM BENEFIT ANDHIGH RETURN ON
INVESTMENT
LIQUIDITY
DIVIDENDEARNING
BONUSSHARES
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DIVERSIFIED FUND
HIGHRETURN
CAPITAL GAIN TAX ADVANTAGE
LOWINVESTMENT
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Equity/Share
Total equity capital of a company is
divided into equal units of small
denominations, each called a share.
The holders of such shares are
members of the company and havevoting rights.
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How is Equity Traded?
Company wants to raise Capital
Issues Initial Public Offering (IPO) in Primary Market.
Shares Issued in IPO are then Traded in SecondaryMarket.
Lets understand how it is Traded
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NEED FOR CAPITAL
Banks & FIs
(Loans, Debts)
Primary Markets IPO
(Equities)
Self Financing
Secondary Market - NSE & BSE(Listing of Shares In Stock Exchanges Like NSE and BSE)
General Public/Investors
Buyer
Trading Member /Broker
Trading Member /Broker
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STOCK EXCHANGE
A common platform where buyers and
sellers transact in stocks and shares.
The Bombay Stock Exchange (BSE)
and the National Stock Exchange
(NSE) are the two leading Exchanges.
There are 23 other regional
Exchanges.
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Regulation of SecuritiesMarket
The responsibility for regulating the securities market is shared by
Department of Economic Affairs (DEA)
Department of Company Affairs(DCA)
Reserve Bank of India (RBI) &
Securities and Exchange Board of India (SEBI).
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Regulation of StockExchange
The Securities and Exchange Board of
India (SEBI) is the regulatory authority
in India
ROLE :-
Protecting the interests of investorsin securities
Promoting the development of the
securities market
Regulating the securities market.
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Depository
A depository is like a bank
wherein the deposits aresecurities in electronic form.
Two main Depositories in India: Central Depository Services
Limited (CDSL)
National Securities Depository
Limited (NSDL).
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Advantage ofDepository
Immediate transfer of securities
No stamp duty on transfer of securities
Elimination of risks associated with physical certificates such as bad delivery, fake securities, etc.
Reduction in paperwork involved in transfer of securities
Reduction in transaction cost
Depository Participant(DP): A depository participant is an agent appointed by the depository to provide its services
to investors Eg:- Banks, Financial Institutions and SEBI Registered Trading Members can
become DPs.
Angel Broking Ltd. Is a Depository Participant registered with CDSL.
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USPs of Angel Broking as a DP
Lowest Transaction charges in the Country.
Minimum Rs 11/- for transfer from Demat to Pool or any other Demat.
No charges if shares kept in Pool Account.
No separate Demat A/c required.
Shares kept in Pool Account can be used as Margin for trading.
No interest charged till T+4 days on non delivery of Shares.
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BROKER
A broker is an intermediary of the
Stock Exchange.
Only registered members can
operate in the stock market.
One can trade by executing a deal
only through a registered broker or
through a SEBI-registered sub-
broker.
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Our Membership on StockExchanges
Memberships
On
Exchanges
BSE
Angel Broking Ltd.
Cash Segment
NSE
Angel Capital &
Debt Market
Cash , Derivatives &
Currency Future
Segment
NCDEX
Angel Commodities
Broking (P) Ltd.
Commodities
Segment
MCX
Angel Commodities
Broking (P) Ltd.
Commodities &
Currency Future
Segment
C i l M k S
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Depository
23 Regional Exchanges
Exchanges
Sub Brokers
Customers
Capital Market Structure
Customers
Customers Customers Customers
Sub Brokers
Customers Customers
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Trading on the Exchange
To Buy & Sell Shares, the customer needs
Demat Account
Trading Account
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Demat Account
Demat is an abbreviation of Dematerialization.
Securities like shares, debentures are converted from the "material"
(paper documents) into electronic data.
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Trading Account
Trading Account is an account required for Buying & Selling Shares.
Trading accounts needs to opened with a Broker .
Each account holder is assigned unique client code .
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Types of Customers
Experienced Investor- Regularly Invests money into various
Investment products
Trader- Continuously buys and sells securities
First Time Investor Wishes to Invests in financial Instruments &
earn profits but has not yet started Investing.
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THE TRADING NETWORK
VSAT
Orders
Confirmation
orders
Confirmation
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Types of Trades
Intra Day Trade:- Both
Buying and selling is done
on the same day .
Delivery Based Trading :-Buy today Sell anytime
BTST :- Buy Today Sell
Tomorrow
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When the market goes up it is called a
bullish trend
When the market goes down it is called a
bearish trend.
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Clearing & Settlement
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Settlement Cycle
Trading Day Buying / Selling T
Settlement Pay-in / Pay-out T+2
Auction T+3
Auction Settlement Pay-in / Pay-out T+4 (BSE)
T+5 (NSE)
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Example
Trade Date RAM SHYAM
T+0 1-Sep-08
Buys 10 shares of
RIL @ Rs 2100
(Thru Angel broking)
Sells 10 shares of RIL
@ 2100
(Thru Angel Broking)
T+1 2-Sep-08
Issues Cheque in
Favor of
Angel Brkg Clearing
A/c# For 21000
Transfer 10 RIL Shares
from his DEMAT B.O
A/C to Angel Broking
Pool A/c
T+2 3-Sep-08
Receives 10 RILshares in his
DEMAT B.0 A/c
Receives creditamount of 21000 in leader
Account
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RAMs Bank A/c
Angel Bank A/c(Clearing)
NSCCL(T+2)
Angel BrokingBank A/c (Clearing) Shyams Bank A/c
ShyamsBeneficiary A/cDemat A/c
Angel Broking Pool A/c
NSCCL(T+2)
Angel Broking Pool A/c``
RAM Beneficiary A/cDemat A/c
PAYOUT OF FUNDS
PAYOUT SHARES
PAYIN OF FUNDS
PAYIN SHARES
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The Trading Process
Pay-in day: The securities sold are delivered to the exchange by the sellers and fundsfor the securities purchased are made available to the exchange by the buyers.
Pay-out: The securities purchased are delivered to the buyers and the funds for the
securities sold are given to the sellers by the exchange.
This is also called as Rolling Settlement. It happens on 2nd working day (T+2)
Auction - On account of non-delivery of securities by the trading member on the Pay-
In day, the securities are put up for auction by the Exchange.
This ensures that the buying trading member receives the securities.
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Margin Amount
Margin Amount is the Amount that needs to be deposited by an Investor while
opening a Demat & Trading account with a BROKER.
More Margin Amount implies more Exposure which ultimately helps Investor do
more Trading & earn more PROFITS.
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Contract Note
Contract Note is a confirmation of trades done on a particular day on behalf of the
client by a trading member.
A valid contract note should be in the prescribed form, contain the details of trades,
stamped with requisite value and duly signed by the authorized signatory.
Contract notes are kept in duplicate, the trading member and the client should keep
one copy each.
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Brokerage
As per SEBI guidelines, a STOCK BROKER/DP can charge maximum brokerage
Amount of 2.5% (on both sides) to his Clients.
As per SEBI guidelines, a SUB-BROKER can claim maximum brokerage Amount of
1.5% (on both sides) from his Broker.
Recommended Brokerage
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Recommended BrokerageRates
ExpectedTurnover /
month
InitialMargin
Delivery Intraday FnO
0-4 lacs 10000 0.50% 0.10% 0.10%
5-25 lacs 25000 0.40% 0.08% 0.08%
26-60 lacs 50000 0.30% 0.06% 0.06%
61-100 lacs 100000 0.25% 0.05% 0.05%
101-200 lacs 300000 0.20% 0.04% 0.04%
Note: The table above is shown as a reference variations possible due to local market conditions.
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Charges Applicabl
e on
Intraday
Charges %
Delivery
Charges %
Futur
e
Optio
ns
TurnoverTax
OnTurnover
0.0035% 0.035% 0.002%
0.05%
STT On
Turnover
0.025% (Only
Selling Side)
0.125% (Both
Side)
0.017
%
0.0017
%StampDuty
OnTurnover
0.002% 0.01% 0.002%
0.002%
SEBI Tax On
Turnover
0.0001% 0.0001% 0.0001
%
0.0001
%ServiceTax
OnBrokerage
10.30% 10.30% 10.30%
10.30%
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Brokerage Calculation
If client has sold 10000 shares of a scrip @ 50,What is the brokerage that the clientcan be charged? (brokerage rate 0.50p)
Ans:-
Brokerage= Brokerage rate * Value of the transaction
= 0.50p * (10000 shares * 50).
= 2500/- Rs.
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The client buys 10000 shares of a scrip @ 225.25 and does intraday at 275.10.
What is the brokerage that the client can be charged?(Intraday brokerage- 0.07p)
Ans:-
Maximum brokerage= Brokerage rate * Value of the transaction
= 0.07p * (10000 shares * 275.10).
= Rs. 192.57
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The client buys 1250 shares at the price of 190 and sells 980 shares at the priceof 210 then What is the Delivery and intraday brokerage client will be charged?
(Del:- 0.45 p; Intra:-0.08 p).
Delivery brokerage= Brokerage rate * Value of the transaction
= 0.45p * {(1250-980) shares * 190).
= Rs. 230 .85p
Intraday brokerage = Brokerage rate * Value of the transaction
= 0.08 * (980 shares * 210).
= Rs 164 .64p
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Debt Instruments
Debt instrument:A contract whereby one lends money to another on pre-
determined terms
Debt Market is Regulated by RBI(Reserve Bank of India)
Bond: Debt instrument issued by Central and State governments & Public
Sector Organizations.
Debenture: Debt instrument issued by Private Corporate Sector.
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Derivatives (F&O)
Derivative is a product whose value is derived from the value of one or more basic
variables, called underlying. Equity, Index, FOREX, Commodity can be the underlying
asset.
Derivative products initially emerged as hedging devices.
The financial derivatives came into spotlight in post-1970.
By 1990s, they accounted for about two thirds of total transactions in derivative
products.
NSE is the largest STOCK EXCHANGE(volume) in the world for STOCK FUTURES.
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Types of Derivatives
Forwards : A forward Contract is a customized contract between two entities,
where settlement takes place on a specific date in the future at todays pre
agreed price.
Futures : An agreement between two parties to buy or sell an asset at a certain
time in the future at a certain price.
Options : A contract which gives the right, but not an obligation, to buy or sell the
underlying at a stated date and at a stated price.
Types of Options:
Calls give the buyer the right but not the obligation to buy a given
quantity of the underlying asset, at a given price on or before a given
future date.
Puts give the buyer the right, but not the obligation to sell a given
quantity of the underlying asset, at a given price on or before a given
future date.
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Option Premium
At the time of buying an option contract, the buyer has to pay apremium.
The premium is the price for acquiring the right to buy or sell.
It is price paid by the option buyer to the option seller for acquiring theright to buy or sell.
Option premiums are always paid upfront.
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Miscellaneous
R d i i t
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Redressing investorgrievances
Complaints can be lodged through the Investor Grievances Cell of the Exchange
Arbitration is an alternative dispute resolution mechanism provided by a stock
exchange If no amicable settlement could be reached through the normal grievance
redressal mechanism
Investor Protection Fund (IPF) is maintained by NSE to make good investor claims,
which may arise out of non-settlement of obligations by the trading member
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Thank You
Published in FYI 2009. Angel Broking 2009-10.
Angel Broking All rights reserved. corporate Off: 612, Acme Plaza, M.V. Road, opp sangam cinema, Andheri east, Mumbai 400059,India.Tel.: +(91) 022 39527100/ 4000 3600
This report is for information purposes only and does not construe to be any investment, legal or taxation advice. It is not intendedas an offer or solicitation for the purchase and sale of any financial instrument. Any action taken by you on the basis of theinformation contained herein is your responsibility alone and Angel Broking and its subsidiaries or its employees or directors,associates will not be liable in any manner for the consequences of such action taken by you. We have exercised due diligence inchecking the correctness and authenticity of the information contained herein, but do not represent that it is accurate or complete.Angel Broking or any of its subsidiaries or associates or employees shall not be in any way responsible for any loss or damage thatmay arise to any person from any inadvertent error in the information contained in this publication. The recipients of this reportshould rely on their own investigations. Angel Broking and/or its subsidiaries and/or directors, employees or associates may haveinterests or positions, financial or otherwise in the securities mentioned in this report.