Stock Market Notes-Stockbrokers, Derivatives, Arbitragers, ETF

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Stockbrokers are the authorized dealers through which anyone can buy/sell shares.

To become stockbrokers, you have to get the license from NSE/BSE exchange.

The most famous are Zerodha, Karvy, IIFL, Angel, Motilal Oswal, India Bulls, etc…

Sub-brokers: They are the agents working under the stockbroker, can be regarded as a branch of the stockbroker. Stock sub-brokership is nowadays given as franchise; you can also get one.

Before choosing a stockbroker, the following things have to be checked:

1. How old is he?

2. What is the brokerage?

3. What is the margin he is providing?

4. What is the software he is providing? What is the cost of it?

5. Is he providing the online trading platform?

6. What are the AMC charges? If any? AMC – Annual Maintenance Charge.

7. Account opening fees, some days for account activation.

Brokerage: It is the Commission that the stockbroker fees for every 100 Rs. of Trade.

The brokerage is different for Intraday, Delivery, and Derivatives; it will be the least for intraday and maximum for Delivery.

For least brokerage use Zerodha Brokerage Flatform.

For Equity Delivery totally free rest of the life.

For Intraday equity and Derivatives like Equity derivatives, Forex and commodities maximum brokerage is 20/- for each transaction.

 When you trade there are other charges also that apply like:

STT, Education cess, CDSL charges, Service charges, etc… which are in the form of taxes to the government, this figure will be typical with any stockbroker.

CDSL: Central Depository Securities Ltd.

NSDL: National Security Depository Ltd.

All the share that you buy or sell is stored in CDSL/NSDL.

Derivatives Trading: Trading the securities in Lot and Contract-based is called as Derivatives Trading.

It is allowed only for the High Market Capitalization Companies, in NSE/BSE, derivative trading is allowed for nearly 230 companies.

It is also called as an F&O segment.

In derivatives, we have, Futures and Options. Both of these sections you can either buy first or also go short; the minimum shares you have to buy is called as the ‘Lot Size.’ The transaction has to be closed before the expiry of the contract period (Last Thursday of the month).

In Futures, the CMP of the company more or less will be the same as in cash.

The brokerage for Futures is same as intraday.

Derivatives have got the margin which changes day to day according to the volatility of the stock price; more the volatility more is the margin required, more the stability in the stock price, lesser is the margin required.

It is termed as span margin, which is an applicable per contract basis.

 Advantages with Futures:

1. Can go short, without any action or penalty.

2. Liquidity is higher here.

3. With less amount, you can buy more shares.

4. The brokerage you pay is of intraday even when you can hold the stocks for nearly a month.

 Risk: The margin of each stock changes day by day, if you fail to facilitate the increased margin for the next day, your holdings are squared by the system.

Options: In options trading, we bet on the price of the company; this amount is called the ‘strike price.’

If you feel that the enterprise price can increase drastically within few days then you can buy Options: ‘Call’, and if you think the price fall drastically within few days then you can buy ‘Put’.

Note: If the company CMP, doesn’t cross your strike price within the first 15 days of the start of the derivative period, you will be in heavy loss else vice versa.

Meaning: If the CMP of the company has crossed the strike price, then you are in profit and advisable to hold on to it till the expiry for more gains and vice-versa.

Brokerage for Options is per lot basis which is between Rs. 50 – Rs.200

Future and Options have to be used together for hedging.

Hedging is the concept of reducing the loss or preventing excess loss if the outcome of the CMP is not as you have anticipated, in this, you have to belong in futures and short in Options else vice-versa.

Arbitragers: They are ones who buy a company into one platform and sell the same on another platform, instantly.

The difference between the CMP of the company on various platforms gives them profit.

E.g. Buying in BSE and Selling in NSE, or Buying equity and selling futures, vice-versa when the price difference is found.

Note: Arbitraging is safe trading, as the trader instantly squares up to his transaction, the market volatility will not affect his profit at all.

Note*: Before buying any company check the prices on both the exchanges, where ever it is less, buy there and in the same way while you sell too.

But for intraday trading, you have to do the transaction on the same exchange.

ETF: Electronic Traded Funds, here important commodities like Gold and Silver price are quoted in the form of shares, one can buy precious metals in the form of shares virtually, the price of ETF is independent of SENSEX or stock market and varies only according to their international prices.

Note: It is always advisable to Buy Gold and Silver ETFs for investment rather than Physical to avoid shop keeper’s margin and other heavy taxes, in fact, the physical gold is not 100% pure too unlike the ETFs.