STEP BY STEP PRACTICAL PROCESS TO BUY or SELL SHARES AND DERIVATIVES IN SECONDARY MARKET
A secondary market is a place where investors can buy or sell shares, bonds and derivative instruments that have already been issued by the company or public institutions or the government. The secondary market is also called the aftermarket.
Step – 1 – Open a Demat account
Gone are the days where one used to get share certificates and buying and selling physical shares were allowed. These days, shares can be bought or sold only in dematerialized form. Dematerialization means converting your physical shares to electronic form. We need to understand some basics here. There are two depositories in India namely – Central Depository Services Ltd (CDSL) and National Securities Depository Ltd (NSDL). Each depository has many participants registered with them and they are called the Depository participants (DP). For ease and convenience you may consider them as banks. Just like you have a bank account to keep your money, you have a demat account to keep your shares. Most of the stock brokers are also Depository participants as well. So you need to open a demat account with the DP.
Step – 2 – Open a trading account
To invest or trade in the secondary market, one has to open a trading account with a stock broker. You cannot buy or sell directly in the market it has to be through the stock broker. Also called as the trading member. The Stock broker obtains registration from SEBI (Securities and exchange board of India) so ensure that they have a valid SEBI registration number.
There are largely two exchanges on which you can buy or sell the shares and bonds. They are National Stock Exchange (NSE) and Bombay Stock exchange (BSE). All the stock brokers get their SEBI registration through the stock exchanges.
Once you open a trading account with the stock broker, you can start placing orders either through telephone, by email, by visiting their branch. But these days’ people are internet savvy and for their ease and convenience they can opt for online trading through computer or mobile as well.
Unlike a bank account opening form that has 2 pages, the account opening form of the trading and demat account is a booklet which require many signatures. Do not sign blank on these forms. Read the terms and conditions, understand them, ask for doubts and only the sign the forms. Also, in case you choose not to opt for some services or do not know how to use the internet, do not leave blank spaces, do strike off those particular details in the account opening form. You are entitled to get a free copy of the account opening form. Take your time to understand fees/ charges etc. Incase you wish to execute the power of attorney, please understand it properly. Please do not opt for electronic contract note if you are not familiar with computers. Ensure that you sign after reading the voluntary clauses. Finally, ensure that you fill application form completely.