QS Study

Trading Process on Stock Exchange

A stock exchange is where pieces of ownership in businesses (stocks) are bought and sold among investors. Few years ago trading on a stock exchange took position through a public outcry or auction structure. This has been replaced by an online screen based electronic trading system as almost all exchanges have become electronic. Trading has, therefore, shifted from the stock market floor to the brokers’ office where trades are executed through a computer. Brokers are members of a stock exchange through whom trading of securities is done. Brokers may be individuals, partnership firms or corporate bodies.

The Trading procedure involves the following steps:

  • Selection of a broker: The buying and selling of securities can only be done through SEBI registered brokers who are members of the Stock Exchange.
  • Placing the Order: After opening the Demat Account, the investor can place the order. The order can be placed to the broker either (DP) personally or through phone, email, etc.
  • Executing the Order: As per the Instructions of the investor, the broker executes the order i.e. he buys or sells the securities. Broker prepares a contract note for the order executed.

A company’s securities can be traded on a stock exchange only if they are listed or quoted on it. Companies have to fulfill a stringent set of requirements to get their securities listed on a stock exchange. This ensures that the interest of the shareholders is adequately looked after.

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