InvestorQ : So does the trading cycle about buying and selling of shares?
prachi Patwardhan made post

So does the trading cycle about buying and selling of shares?

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Anu Biswas answered.
4 years ago
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Not just that; it is a lot more. The trading cycle consists of Trading, Clearing, and Settlement. These are the three key pillars that get covered in the trading cycle. This entire process of trading, clearing and settlement market the movement of cash and shares from one account to another. Here is how they interface with each other.
Let us first look at Trading as the first step. Trading is the process of buying the security of a company. The investor takes a decision of investing in a particular company based on its past performance and future potential. Trading is said to have happened when the investor has confirmed the order and the money has been debited from his/her account towards the shares of the company.
The second step is clearing the trade. Clearing is the process by which an organization acts as a link between a buyer and a seller to ensure a smooth transaction of money and the shares. Clearing is necessary for matching the sell and buy orders from each other. Investors, to avoid complications, transfer the money to the clearing corporation rather than crediting the account of the company itself. This enables a smooth transaction and reduces the chances of fraud on account of both the parties.
The last step is Settlement. When the demat of the investor is credited with the shares he/she bought or his/her bank account is credited with the money they earned on selling the shares, the settlement is said to have occurred. Clearinghouses, after clearing all necessary obligations of funds transfer, give the go-ahead for the settlement of the shares or the money to the investor’s account.
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