Share Trading

By Liam Walter, eHow Contributor Share Trading Definition

Companies issue shares of their company in order to raise capital. Share trading is the exchange of securities between two individuals or brokerage firms. The shares must be registered with a stock exchange such as the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotation System (NASDAQ).

Function

The exchange of shares of a company is intended to help adjust the intrinsic value of a security. Many factors change the price of securities such as global news and company reports. Through exchanging shares of a company, the intrinsic value of a security is represented.

Features

Investors buy and sell securities in order to create a profit. The intention is to buy and then sell at a higher price to make a profit. This can be done through investing in a company through buying shares or through short selling and an options contract. Short selling is the process of borrowing shares of a company from a broker to sell the shares, then buying the shares back in order to compensate the broker. An option is a legal agreement which provides the buyer the power to sell or buy a share at an agreed upon price.

Effects

The exchange of shares of a company by individual investors helps create liquidity in the market. Liquidity is the ability to convert a security into cash. In addition, the price at which the security is exchanged helps reflect the value of the company. Many companies receive financing based on the current price per share of their company. Thus, if the stock is traded at a high price the company is more likely to receive a good financing deal.

Warning

Trading shares of a company is extremely difficult. The stock market is a zero sum game: For someone to gain money off of trading, someone must lose the same amount off of trading. Thus, traders are forced to compete with large investors with graduate degrees and decades of experience.

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What is Share? What are the Types of Shares Definition: According to the section 2(46) of the Companys Act 1956, share means a part in the share capital of the company and it also includes stock except where a distinction between stock and share capital is made expressed or implied. Types of shares: As per the provision of section 85 of the Companies Act, 1956, the share capital of a company consists of two classes of shares, namely: Preference Shares Equity Shares Preference Shares

Share capital
From Wikipedia, the free encyclopedia Jump to: navigation, search

Share capital (UK English) or capital stock (US English)[1] refers to the portion of a company's equity that has been obtained (or will be obtained) by trading stock to a shareholder for cash or an equivalent item of capital value. For example, a company can issue shares in exchange for computer servers, instead of purchasing the servers with cash.

Trading
Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order of buying or selling. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders. Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively.) When the bid and ask prices match, a sale takes place, on a first-come-first-served basis if there are multiple bidders or askers at a given price. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery. The New York Stock Exchange(NYSE) is a physical exchange, also referred to as a listed exchange only stocks listed with the exchange may be traded, with a hybrid market for placing orders both electronically and manually on the trading floor. Orders executed on the trading floor enter by way of exchange members and flow down to a floor broker, who goes to the floor trading post specialist for that stock to trade the order. The specialist's job is to match buy and sell orders using open outcry. If a spread exists, no trade immediately takes placein this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. Once a trade has been made the details are reported on the "tape" and sent back to the brokerage firm, which then notifies the investor who placed the order. Although there is a significant amount of human contact in this process, computers play an important role, especially for so-called "program trading". The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. However, buyers and sellers are electronically matched. One or more NASDAQ market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock.[5] The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on the trading floor or the Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated. From time to time, active trading (especially in large blocks of securities) have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and

Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 as more investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry consultant.[6] Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11 billion a year that institutional investors pay in trading commissions.

Trading Method
Listing securities are traded on the floor of recognized stock exchange where its member traded. An investor is not permitted to enter the floor of stock exchange and he has trust the broker to:
*. Negotiate the best price for the trade. *. Settle the account, i.e. payment for securities sold on due date. *. Take delivery of securities purchase. TYPES OF TRADING Trading in stock exchange is conducted in two ways: Ready delivery contract. Forward delivery contract.

BASKET TRADING SYSTEM The Basket Trading System provides the arbitrageurs an opportunity to take advantage of price differences in the underlying Sensex and Futures on the Sensex by simultaneous buying and selling of baskets comprising the Sensex scrips in the Cash Segment and Sensex Futures. This is expected to provide balancing impact on the prices in both cash and futures markets.

The Exchange has commenced trading in the Derivatives Segment with effect from June 9, 2000 to enable the investors to, inter-alias, hedge their risks. Initially, the facility of trading in the Derivatives Segment was confined to Index Futures. Subsequently, the Exchange has introduced the Index Options and Options & Futures in select individual stocks. The investors in cash market had felt a need to limit their risk exposure in the market to movement in Sensex. To participate in this system, the member-brokers need to indicate number of Sensex basket(s) to be bought or sold, where the value of one Sensex basket is arrived at by the system by multiplying Rs.50 to prevailing Sensex. For e.g., if the Sensex is 4000, then value of one basket of Sensex would be 4000 x 50= i.e., Rs. 2,00,000/-. The investors can also place orders by entering value of Sensex portfolio to be brought or sold with a minimum value of Rs. 50,000/- for each order.

PROCEDURE OF TRADING
1.Select of broker The first step is buying or selling of share is to select a broker for transaction business on behalf of the investor. The trading of securities on the stock exchange can be done through members of the exchange.

An investor prefers to select a broker who shall. Act with due skill. Care and diligence in the conduct of all his business. Not create false market either singly or in concert with other.

2.Opening An Account With The Broker The next step to open account with the broker. It helps the investor to provide his credit worthiness, if the clients were not to do margin money with the broker.
3.Selection Of Securities

This is application for buying securities. The investor may be consulted with broker and take advise for selection of securities.
4.Selection Of Time For Trading

This is important to get the best advantage from buying or selling the securities. 5. Placing An Order

Various method of placing an order with the broker has been evolved to give the broker leverage when he is on the floor of the stock exchange.
6. Preparation Of Contract Note SEBI circular of 4th Feb. 1991 requires that all member of the recognized stock exchange issue contract note to the investors on the execution of trade. Brokers, therefore issue contract note to the client, which gives the name of the company, price of trade, brokerage, time of execution, provision regarding arbitration etc. in term of the bye-laws of stock exchange, this is statutory requirement and mandatory. 7. Settlement The settlement is the process where by payment is made by brokers who have made purchase and share delivery by those brokers who have made sales.