A stock broker acts as an intermediary, facilitating the buying and selling of stocks and securities in a stock exchange on behalf of financial institutions and firms. Investors cannot directly trade in stock exchanges; hence, the role of a stock broker is crucial.
How Do You Buy and Sell Stocks in a Stock Market?
To successfully carry the transaction of stocks trading, you are required with an intermediary who helps you in purchasing and selling the stocks in a much better way. This intermediary can be a person or a company that is authorized to do the transaction of stocks on your behalf. Such a company or person is known as a stock broker in India.
A stock broker in India can be either a stockbroking firm or an independent entity, providing stockbroking services to customers. The primary role of a stock broker is to execute buy and sell orders for clients, and to offer insights that help investors make insightful decisions.
Before we step into the importance of stock broker, let’s figure out how to choose the best online stock broker:
How to Choose the Best Online Stock Broker?
Selecting the right online stock broker is crucial for successful investing. A good stock broker not only helps you identify potential stocks but also guides you in choosing the best ones for generating returns.
If you are a newbie who wants to invest in stock market trading, it is suggested to pick the best online stock broker, as with the help of it, you can handle all the stock market operations at a fingertips.
Here are some tips to select the best online stock broker:
1. Understand Your Basics
Know your investment needs. Opt for a stock broker who understands your expectations from stock trading. Many online stock brokers charge high brokerage fees, which may not suit new investors. Look for brokers like Swastika Investmart that offer excellent trading services at affordable rates.
2. Stock Market Pricing
It is important to check the pricing of a stock broker before deciding to move further. Try to find out the AMC annual maintenance charges. These charges vary from broker to broker. Some brokers charge very high amounts, while others, like Swastika Investmart, offer competitive and transparent pricing.
3. Range of Trading Segments
Different investors have different priorities in trading financial products such as Equity, commodities, IPOs, FDs and more. Go for the stock broker who has different financial products.
4. Fund Transfer Process
Select a stock broker which comes with 3 in 1 Demat account as the stock broker provides seamless fund transfer services which allow investors to trade with ease. This feature, offered by Swastika Investmart, allows you to trade with ease without constantly transferring money.
5. Expertise of Research Team
While selecting a stock broker, it would be ideal to check the research team provided by the stock broker first. This is because the research reports generated by the stock broker help investors in picking the best stocks that would give them high returns.
Importance of a Stock Broker in India
Margin Financing:
In share trading, margin trading refers to the process where individual investors buy more stocks than they can afford. Also known as intraday trading, margin trading allows all the transaction of stocks (buying and selling) in a single day.
Now Intraday’s stock brokers are well capitalized. Here, stock broker lends capital to the traders who want to leverage their positions. A margin amount is to be paid by traders after which they are allowed to take positions in the stock market. Generally, the margin amount is 50%.
Recommend the Best Deals
Mostly, a broker deals in all types of securities. The stock brokers suggests the best deals to its clients such as when to buy or sell a stock. Majorly suggest the stocks on the basis of advisory, and research reports suggested by them.
Handling Trade
A stock broker receives orders from multiple traders and places those orders on a stock exchange. Once the order is successfully placed, trades will get to know about it. However, this is the case with full-service stock broker of India, online brokers facilitate trades with trading platforms where traders can place their orders on their own.
All the orders are automatically visible in your Demat account once they are successfully placed and executed.
Paid on Commission
Full-service stock brokers charge commissions in the form of brokerage for the services they provide to traders. This charge is some percentage of the trader they provide to clients. Discount brokers charge a flat commission which is pre-decided on every executed order.
Buying and Selling shares Online in India?
Now, many of you have acknowledged the fact that how share trading can play a valuable role in your life. Yes, you heard it right. Investing in online share trading gives you bundles of opportunities to invest in different types of stocks.
Once you gain appropriate knowledge about stock trading, you can easily perform transactions with such ease and book a significant amount of profit. In case you need any help, you can easily connect with an online stock broker, during the initial days. Once you become a thorough expert in buying and selling shares then you can try to do it on your own.
Things you need to know:
PAN Card
For the Demat account opening process, you must require the important document as proof i.e PAN Card. It is a valid ID proof that is issued by the government of India.
Depository Participants
NSDL (National Securities Depository Limited) and CSDL (Central Security Depositories Limited) are the primary depository participants of India that help you to store the shares you hold. They provide you with a unique account pertaining to the same.
Many people often get confused with the term Demat and Trading account. Demat Account shows the number of shares you hold. Trading account, on the other hand, allows you to buy and sell shares that you currently have.
Picking the right Stock Broker
If you are a beginner then it is suggested to consult a full-service trusted broker. This is because the full-service broker gives you guidance on the day to day aspects of share trading. These stock brokers are SEBI (Security and Exchange Board of India) certified and given licence to act as a broker. In other words, a broker is an intermediary between an independent stock broking firm and share trader.
Ways to Perform Buying and Selling of Shares
This is how you perform in buying and selling shares. For instance, you have bought shares of Rs 890 with the assistance of a broker, the broker will ensure you regarding the purchase order or stop order. Also, they help you to execute the stop order if you want to stop the transactions during the day.
How are the Stock Brokers in India regulated?
Stock brokers in India are regulated under the Securities and Exchange Board of India Act 1992, Securities Contract Regulations Act, 1956, and also the Securities and Exchange Board of India (Stockbrokers and sub-brokers Regulations), 1992.
In addition to this, stock brokers are also regulated under other regulations and bylaws that SEBI may issue from time to time.
Important Note:
Every stockbroker in India needs to be a member of stock exchanges and also requires to be registered with SEBI. Stockbrokers display their registration details on their websites and even on official documents. To get any inquiry about registration, one can also visit the SEBI website and find details of registered stockbrokers.
Types of Stockbrokers
Now you all know about stock brokers and how they are regulated, let's take a quick tour of the types of stock brokers.
Based on the types of service provided, there are majorly two types of stockbrokers - full-service stock brokers and a discount stock broker.
Full-Service Stockbrokers:
Comprehensive Services: Offer full trading services and a wide range of add-ons to clients.
Advisory Services: Provide advisory services to help clients make good investment decisions.
Research Reports: Supply detailed research reports on various stocks and market trends.
Relationship Managers: Assign relationship managers to assist with client needs.
Variety of Services: Offer additional services such as IPOs, mutual funds, insurance, loans, etc.
Established Players: Often have a strong presence with branches across the country.
Client Convenience: Easier for clients to access services and get advice due to widespread branches.
Discount Stockbrokers:
Limited Services: Do not provide advisory services or research facilities.
Online Platform: Emerged due to the ease and accessibility of the internet.
Trading Platform: Offer an online trading platform for clients to execute trades.
Flat Brokerage Fees: Charge flat brokerage fees, typically a set fee per transaction.
Cost-Effective: Generally more cost-effective for clients who do not require additional services.
Online stockbroking services are faster than traditional ones because transactions can be done over the internet. They also allow stockbrokers to connect with clients via email and chat, providing real-time updates.
In addition to stockbrokers, it's useful to understand sub-brokers. A sub-broker works on behalf of a stockbroker to help investors trade financial securities. Unlike stockbrokers, sub-brokers are not directly members of the stock exchange and need to register with SEBI to trade.
Rights and Responsibilities of Stock Brokers, Clients, and Authorised Persons
All parties involved in trading services—whether clients, authorised persons, or stock brokers—are governed by SEBI regulations, which ensure clarity and transparency in all transactions and liabilities related to share trading.
Here is a summary of the rights and responsibilities for the top stock brokers in India:
- Regulatory Compliance: Stock brokers, authorised persons, and clients must adhere to SEBI’s rules and regulations.
- Client Responsibilities:some text
- Investment Choices: Clients should invest only in financial instruments approved and listed by SEBI.
- Verification: It is crucial for clients to verify the authority and credibility of a stock broker before engaging in transactions.
- Account Queries: Clients should resolve any queries about the account opening process and carefully review all investment guidelines and documents.
- Stock Broker Responsibilities:some text
- Up-to-Date Information: Stock brokers must stay informed and update themselves before presenting any information or executing transactions on behalf of clients.
- Client Awareness: They must inform clients about stock trading methods, liabilities, policies, and the rules under which they operate.
- Confidentiality: Stock brokers are responsible for maintaining client-related documents confidentially and must not disclose them to unauthorised parties.
Code of Conduct for Stock Brokers
Integrity:
A stock broker must uphold the highest standards of integrity, fairness, and promptness in all business activities.
Exercise of Due Skill and Care:
A stock broker is required to exercise care, diligence, and due skill in every aspect of their business operations.
Manipulation:
A stock broker must refrain from engaging in deceptive schemes, fraudulent transactions, or spreading rumours that could distort market equilibrium or lead to personal gains.
Malpractices:
A stock broker should not create or participate in the creation of a false market, whether individually or in collaboration with others. Additionally, they must avoid any actions that could harm investors' interests or disrupt the fair and smooth functioning of the market. Excessive speculative trading beyond reasonable business limits, especially if not aligned with the broker's financial stability, is strictly prohibited.
Compliance with Statutory Requirements:
A stock broker must adhere to all relevant provisions of the law, including rules and regulations issued by the government, the Securities and Exchange Board of India (SEBI), and the stock exchange as applicable.
Becoming a Stockbroker
Education:
While there are no specific educational prerequisites for becoming a stock broker, certain courses can provide valuable insights and advantages in the field. The minimum qualification is a bachelor's degree, coupled with at least two years of experience in a stock broking firm. Many stock brokers further enhance their expertise with a Master of Business Administration (MBA) in finance, which equips them with knowledge in mathematics, statistics, qualitative analysis, and more.
Experience:
Gaining experience in a stock broking firm is crucial for aspiring stock brokers. This hands-on experience provides a deep understanding of stock market regulations, financial markets, and accounting practices.
Conclusion
The Indian capital market is recognized as one of the most organised and regulated sectors, largely due to the efforts of SEBI. Whether you are an investor or a stock broker, it is essential to operate within the guidelines set by SEBI to avoid potential challenges.
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