Friday, February 22, 2013

Excellent Trading School - 5 - Basic Question and Answers

what is Derivatives ?
The term “derivatives” or locally called FnO (Futures and Options) is used to refer to financial instruments which derive their value from some underlying assets. The underlying assets could be equities, commodities or scrips (shares),and Nifty 50 Index. Derivatives derive their names from their respective underlying asset.

What is trader terminal?
normally a broker will provide the investors two trading platforms, one is web based terminal and other is software based application terminal, terminal is nothing but user interface where a investors "logs in" with login name and password.

Difference between them is web based terminal is most basic one, u can do only buy and sell, see the trading account details, whereas in trader application (Exe - based software) terminal u can see intraday charts of stocks& index , historic stock& index charts, etc.. these things u will not get in web based terminals.

If you modify your order do you get charged?
No charges for order modification, if you modify order, you will not be charged, but exchange can reject  modified order and execute the transaction at the non-modified order, which will be unwanted loss, so you should be careful that many times exchange will accept but after one extent your order gets executed and you have to pay for non-modified old order...that’s why you should keep a "final" modified order to execute.

What is screen based trading?
The trading on stock exchanges in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. This was time consuming and inefficient. This imposed limits on trading volumes and efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a nationwide, on-line, fully automated screen based trading system (SBTS) where a member can punch into the computer the quantities of a security and the price at which he would like to transact, and the transaction is executed as soon as a matching sale or buy order from a counter party is found.

What is a Contract Note?
Contract Note is a confirmation of trades done on a particular day on behalf of the client by a trading member. It imposes a legally enforceable relationship between the client and the trading member with respect to purchase/sale and settlement of trades. It also helps to settle disputes/claims between the investor and the trading member.

What is the maximum brokerage that a broker can charge?
The maximum brokerage that can be charged by a broker from his clients as commission cannot be more than 2.5% of the value mentioned in the respective purchase or sale note.

Why should one trade on a recognized stock exchange for buying/selling shares?
Trading at the exchange offers investors the best prices prevailing at the time in the market, lack of any counter-party risk, which is assumed by the clearing corporation, access to investor grievance and redressal mechanism of stock exchanges, protection upto a prescribed limit, from the Investor Protection Fund etc.

An investor does not get any protection if he trades outside a stock exchange.

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