Trading Cycle — Timing, Process, Steps and Best example 2021
Everyone mostly knows trading very well as it is a process of buying and selling stocks in the share market. However, the trading cycle is something which can confuse many newbie traders and investors in the stock market. Let’s discuss the trading cycle in detail.
Trading Cycle Meaning
The trading cycle is the way through which stocks in the Indian stock market are exchanged. It facilitates a smooth transaction among the investor and the firm. The procedure has changed through time, and now 99 percent of all transactions are completed digitally, making it efficient and simple.
Example
Mr. X invests in the XYZ corporation. He purchases ten stocks at Rs 1,000 each. On Monday, this action is carried out. The Trade Date is Monday and the date corresponding with it.
On the trade date ‘T,’ the broker deducts Rs. 10,000 from x’s account and issues him a Contract Note as evidence of the transaction.
All of the trade’s internal processing is completed on T+1 day. By the conclusion of the T+2 day, Mr. X will have stocks of Xyz in his DEMAT account.
If Mr. X had sold his shares instead of buying them in the scenario above, the stocks would have been blocked in his DEMAT account before T+2 day.
Before T+2 day, they would be transferred out of his DEMAT account and money will be credited on T+1 day.
Trade life Cycle Process
It involves three basic things. Let’s discuss them one by one.
Trading is the act of buying or selling a firm ‘s stock. Depending on the company ‘s previous success and future prospects, the investor decides whether to invest or exit.
When an investor confirms an order and funds are debited or credited from or to his or her account for or against the company’s shares, trading is said to have taken place.
Clearing is the procedure of an entity acting as a mediator between a buyer and a seller to ensure a seamless payment and stock exchange. Clearing is required to match sell and purchase orders from different parties.
To prevent difficulties, investors transfer funds to the clearing firm rather than crediting the firm’s account. This allows for a seamless transaction and lowers the risk of cheating on both parties’ behalf.
The settlement is considered to have been completed when the investor’s demat account is credited with the shares he or she purchased, or when the money received on selling the stocks is deposited to the investor’s bank account.
After meeting all essential funds transfer requirements, clearinghouses provide the green light for the settlement of stocks or cash to the investor’s account.
Originally published at https://profitmust.com on September 19, 2021.
