Trade execution is the critical process of buying and selling securities in the financial market. It involves various stages, including submitting an order, trade confirmation, clearing and settlement of securities. This article will explain the journey of an order in stock trading and how it gets executed in the Indian stock market.
To understand the trade execution process, let's take the example of Tata Technologies Limited (TTL) initial public offering (IPO) launched on 8th July 2021. The IPO was priced at INR 853 per share, and the company aimed to raise INR 4,543 crore.
An investor interested in buying Tata Technologies IPO shares has to open a trading account with a stockbroker. After opening the account, the investor has to fund it with the required amount to purchase the shares. The stockbroker will provide the investor with an online trading platform to submit the IPO application form.
Once the investor fills the application form, it is then sent to the stock exchange for further processing. In this case, Tata Technologies IPO was launched on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
The stock exchange then receives all the IPO applications and verifies them. If the application meets the eligibility criteria, the exchange sends the request to the registrar of the IPO. The registrar is responsible for processing and allocating the shares to investors.
In Tata Technologies IPO's case, the registrar was KFin Technologies Private Limited. KFin verified the applications and allocated the shares based on the investor's bid price. The price range of the IPO was between INR 853 to INR 858 per share.
Suppose investor A bid for 100 shares at INR 856 per share and investor B bid for 50 shares at INR 853 per share. In that case, the shares will be allocated to investor A first, and then investor B based on the remaining shares available.
Once the shares are allocated, the registrar sends the confirmation to the stock exchange, and the stockbroker provides the investor with the allotment details. The investor can check the IPO allotment status on the BSE or NSE website by providing the application number or demat account number.
After the IPO allotment, the stockbroker credits the shares to the investor's demat account. The demat account is a digital account where all the securities are held in electronic form.
The investor can check the Tata Technologies share price on the BSE or NSE website or any other financial news portal. Suppose the investor decides to sell the shares. In that case, he has to place a sell order through the trading platform provided by the stockbroker.
The sell order will include the number of shares and the price at which the investor intends to sell. Suppose the investor places a sell order of 100 shares at a price of INR 900 per share.
Once the sell order is submitted, it goes to the stock exchange for processing. The exchange matches the sell order with the buy order placed by other investors.
Suppose investor C places a buy order for 100 shares at a price of INR 900 per share. In that case, the exchange matches the two orders, and the trade is executed. The stockbroker then debits the shares from the investor's demat account and credits the sale proceeds to the investor's trading account.
The above example explains the journey of an order in stock trading from submitting the IPO application to executing a sell order. However, the trade execution process is not as simple as it seems. Several factors can affect the order execution, such as market volatility, liquidity, and transaction costs.
For instance, if the market has high volatility, the stock price can fluctuate significantly, making it challenging to execute the order at the desired price. Similarly, if the stock has low liquidity, it may be challenging to find a buyer or seller for the shares, affecting the order execution.
Moreover, transaction costs, such as brokerage fees and taxes, can also impact the execution process. For example, the brokerage fees charged by the stockbroker can vary depending on the trading volume and the type of order placed.
Therefore, it is essential for investors to consider all these factors before placing an order. Investors should also have a sound understanding of the market conditions and the company's fundamentals before investing.
In conclusion, trade execution is a crucial process in stock trading, and investors need to be well-versed with its intricacies. The example of Tata Technologies IPO explains the journey of an order from the submission of an application to the execution of a sell order. However, investors must evaluate all the pros and cons before trading in the Indian stock market and seek professional advice if necessary. The Indian stock market is subject to risks, and investors must gauge their risk appetite before investing.
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