A
stock exchange in the platform where financial instruments like stocks and
derivatives are traded. Market participants have to be registered with the
stock exchange and SEBI to conduct trades. This includes companies issuing
shares, brokers conducting the trades, as well as traders and investors.
First,
a company gets listed in the primary market through an Initial Public Offering
(IPO). In its offer document, it lists details about the company, the stocks
being issued, and so on. During the listing, the stocks issued in the primary
market are allotted to investors who have bid for the same.
Once
listed, the stocks issued can be traded by the investors in the secondary
market. This is where most of the trading happens. In this market, buyers and
sellers gather to conduct transactions to make profits or cut losses.
Stock
brokers and brokerage firms are entities registered with the stock exchange.
They act as an intermediary between you, as an investor, and the stock
exchange.
Your
broker passes on your buy order to the exchange, which searches for a sell
order for the same share. Once a seller and a buyer are fixed, a price is
agreed finalized, upon which the exchange communicates to your broker that your
order has been confirmed.
This
message is then passed on to you. Even at the broker and exchange levels, there
are multiple parties involved in the communication chain like brokerage order
department, exchange floor traders, and so on. However, the trading process has
become electronic today. This process of matching buyers and sellers is done
through computers.
As
a result, the process can be finished within minutes.
However,
there are tens and thousands of investors. It is impossible for all to converge
in one location and conduct their trades. This is where stock brokers and
brokerage firms play role.
Once
you place an order to buy a particular share at a said price, it is processed
through your broker at the exchange. There are multiple parties involved in the
process behind the scenes.
Meanwhile,
the exchange also confirms the details of the buyers and the sellers to ensure
the parties don’t default. It then facilitates the actual transfer of ownership
of shares. This process is called settlement. Earlier, it used to take weeks to
settle trades.
Now,
this has been brought down to T+2 days. For example, if you conducted a trade
today, you will get your shares deposited in your demat account by the day
after tomorrow ( i.e. two working day).
