The procedure of purchase and sales of securities online is as follows:

1. Opening demat account:

• First of all the investor needs to approach any depository participant (DP) and open a demat account with it.The DP opens this account under NSDL or CDSL.
• The investor can purchase/sell/hold their shares in the demat account.

2. Order to buy-sell:

• Once the demat account is active, the investor can trade online.
• Investor who wants to sell securities needs to place an online order with the broker.
• While purchasing/selling, the investor need to carefully mention the details such as name of the share, price at which the investor wants to purchase or sell, etc.

There are two types of order in purchase and sale of securities. They are:

(a) Limited order:

• When an investor selects the option of ‘limited order’, it means that he will set the price at which he needs to purchase or sell the shares. Thus, in this case, the price of purchase and sale is pre-determined.
• Retail investors and fund houses generally trade by placing order in this format.

(b) Market order: When an investor wants to trade at the prices existing in the market, he selects ‘market order’. Here, the buying/selling iakes place at the latest quoted market price that appeared on the trading screen order was made.

3. Execution of order:

• When the investor places the online order with the broker, the broker further executes the order. The broker places the order in stock exchange.
• The broker on behalf of his customer (investor) can conduct transaction from his office through online trading.

4. Contract note:

• Once the broker further places the order received from the investor, he prepares a contract note for the investor.
• Contract note is a confirmation of the day on which transaction took place.
• Generally, the broker sends contract note to the customer within 24 hours after transaction takes place.
• The contract note contains details such as name of the security traded, quantity, total amount of transaction, order number, brokerage, taxes applicable, etc. Thus, contract note is a summary as well as agreement about the traded securities.

5. Settlement of transaction:

• The settlement houses settle the transactions.
• The settlement house of Bombay settles the transactions done under Bombay Stock Exchange.
• NSCCL-National Securities Clearing Corporation Limited performs the settlement of transaction done in National Stock Exchange.
• Settlement of transaction occurs after a day of transaction or trade.

6. Payment of amount and delivery of security:

• If the investor has purchased the shares, he has to make the payment prior to the pay-in day. The delivery is done to the investor on pay-out day.
• If the investor has sold the shares, delivery of shares is to be done prior to the pay-in day. ,
• Customer receives money on pay-out day.
• Pay-in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay-out day is the day when the exchange makes payment or delivery of securities to the broker.

7. Inform customer about settlement of transactions:

• If the investor has sold the securities, the broker will make the payment to the customer through bank.
  In case if the investor has purchased the securities, the broker will make payment directly from the investor’s bank account.
• Settlement of transaction is informed to the customer through demat account.