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Market Intelligence › Basic Terminologies
Exchange, clearing, settlement, margin, circuit, corporate action and regulator — in a single journey
Published by The Retail Trader · JUL 29, 2026 · Market Basics
Between pressing a button and the shares landing in your demat account, roughly half a dozen institutions do their work, and most traders cannot name even one of them. That is not strange — the whole point of plumbing is that it stays invisible. But on the day something gets stuck — a share is not credited, a penalty debit shows up, a position closes by itself — this knowledge is what separates understanding the problem and fixing it from spending hours going around in circles with customer care. This article opens up that whole route step by step, in the order your order passes through it.
Before going further, it helps to see the whole map in one place. The rest of the article opens up each stop on this map.
A buy order passes through these stops:
• You place the order in the app. It goes first into the broker's system.
• The broker applies its own checks — is there money, is there a limit, is that scrip allowed.
• Once the checks pass, the order goes into the exchange's matching engine.
• The exchange matches it with an order on the other side. This is where the trade is created.
• The trade goes to the clearing corporation, which steps in between both sides.
• Settlement happens on the fixed day — money from one side, shares from the other.
• The shares are credited to your demat account through the depository.
Each stop has a different institution, different rules, and a different kind of error that can occur. When something gets stuck, the first job is to identify which stop it is stuck at — because the place to ask is different for each stop.
There are five kinds of players in this whole structure and their jobs are completely different. Keeping them separate from one another is the most important thing.
The broker is your agent — it forwards your order. The exchange is a marketplace — it matches orders. The clearing corporation is a middleman — it gives the guarantee. The depository is a register — it keeps the record of which share belongs to whom. And the regulator watches from above to make sure everyone is doing their job properly.
This split matters because people ask the broker about almost every problem, whereas the broker owns only the first stop. A share not being credited could be a depository matter, an auction loss a clearing matter, and a circuit an exchange matter.
The exchange has one basic job — to match buyers and sellers without knowing who they are. It does not buy or sell anything itself.
Its second job is to make and enforce rules — which shares will be listed, how they will trade, when the session will open and close, and under what conditions trading will be halted.
The third job is surveillance — catching unusual activity. It is under this that some names are placed under extra watch, which is discussed in detail later.
Inside the exchange there is an order book. On one side are all the buy orders with their prices, on the other all the sell orders. When the prices on the two sides meet, a trade is created.
The matching rule runs on two things — first price, then time. That is, whoever offers the better price goes first, and if two people are at the same price, whoever came first goes first.
This rule is what makes the market fair. There is no concession for anyone — neither for size nor for name. A small order and a very large order stand in the same queue.
The bid and ask you see on the screen are the top line of the order book. Behind it, how much quantity sits at each price is called depth.
The whole meaning of depth lies in one question — if I want to sell right now, who is ready to take it, and at what price. In liquid names this queue is long; in small names it ends after two or three lines.
This is why a large order moves the price by itself in a small name. It exhausts the first line, then the second, then the third — and the price of each next line is worse than the one before. This difference is called slippage, and it does not show up separately in the ledger like a charge.
In India most large names are listed on two exchanges at the same time. Each has its own order book and the prices can differ slightly.
That difference stays very small because arbitrageurs close it immediately. But liquidity is often not equal — in one name, a lot of trading happens on one exchange and very little on the other.
The practical effect is that which exchange the order goes to matters — especially in small names. In most apps this choice is available and most people never look at it. An order sent to the exchange with lower liquidity can fill at a poor price.
One more thing many people do not know — a share bought on one exchange can be sold on the other, because settlement and demat are the same for both. A share does not come labelled with an exchange.
An index is not a separate thing that gets traded. It is a weighted average of the names inside it, and its whole behaviour comes from that weighting.
Most large indices weight by market value — the bigger name has more influence, the smaller one less. There is one more adjustment: only the portion that is actually available to trade in the market is counted, not the stake held by the promoter.
The practical effect is large. The top few names in an index decide a big part of its behaviour. So the index going up does not say that most names in the market are up — it only says that its large names are up.
The names inside an index change from time to time — some drop out, some come in. Around that change, large orders arrive in those names, because the funds that copy the index have to change their holdings. This is a well known mechanical event and its effect on price is real.
People often think of the broker as an app. It is actually a registered intermediary whose job is to get you to the exchange, and several responsibilities come with that.
The broker has these jobs:
• Opening your account and completing KYC.
• Sending orders to the exchange and keeping a record of them.
• Taking margin and keeping its accounts.
• Sending the contract note — which is the legal record of every trade.
• Keeping your money separate from its own money.
The last point is the most important and gets the least discussion. The client's money must stay in an account separate from the broker's own money — the broker cannot run its own business with it. Whenever a major broker-related case comes to light, it is almost always connected to this rule being broken.
The common understanding is that the shares stay with the broker. That is wrong. The shares are in your demat account, which is held with the depository, and it is in your name.
Money is a different matter. The balance in the trading account is with the broker — in a separate client account, but under the broker's control. This is why it is considered a good habit not to leave idle money with the broker and to take it back to the bank.
There is a regulatory side to this too — there are rules for returning the client's balance from time to time, which in common language is called the settlement of accounts. On that day your idle money comes back to the bank, and many people mistake it for an error.
Every client gets a unique code that is linked to their PAN. This is how the exchange knows which trade belongs to whom.
The most useful application of this is that you can get a record of your trades directly from the exchange and the depository, separately from the broker. The depository sends statements on its own, and the exchange also sends trade information separately.
Receiving this information is exactly the safety this system was built for. If the broker's statement and the depository's statement differ, something is wrong, and it should be asked about immediately. Most people delete these messages without reading them, and that is their cheapest safety check.
Brokers are broadly of two kinds, and the difference is not only about brokerage — they sell different kinds of service.
One kind gives only the platform and execution, at a low charge. Here research, a relationship manager and phone advice are often not available, or are available separately.
The other kind gives the full package — research reports, a dedicated person, and more hand-holding. Its charge is higher.
The right choice depends on whether you will actually use that extra service. Many people pay the full charge and never touch the service. And many choose the cheapest and get stuck on the day they needed to talk to a person.
More than brokerage, these things matter:
• Whether the platform keeps running on a volatile day — the day the market moves the most is the day a system outage costs the most.
• How long it takes to reach support, and whether you get a written record.
• How quickly fund transfers and withdrawals happen.
• What the public data on its complaints at the exchange looks like.
• Whether it offers the segments you will need later on.
Many active traders keep two brokers — so that if one is down, the position can be closed through the other. It is a small cost for one or two days a year, and on those days it earns back its full price.
A market order says — fill at whatever price is available. A limit order says — fill at this price or better, otherwise wait.
The advantage of a market order is that it almost always fills. Its drawback is that there is no promise on price. In a liquid name this difference is close to nothing; in a less liquid name it can be very large.
A limit order is the opposite — the price is in your hands but there is no promise of a fill. In a fast move it gets left behind and you are not in that move at all.
A common piece of advice is that market for exiting and limit for entering fits well. The logic is that missing an entry costs nothing, but missing an exit is dangerous. This is a way of thinking, not a rule, and it depends on the liquidity of the name.
Stop loss orders come in two kinds and the difference between them matters a great deal.
In one form you give a trigger price and when it is hit, a market order goes out. Here a fill is almost guaranteed but the price is not.
In the other form there is a limit along with the trigger. Here the price is protected, but in a sharp fall the order may not fill at all, and you are left stuck in the position — exactly when getting out mattered the most.
The choice depends on which mistake you fear more. And one thing applies to both — during a gap, no stop can give the price you had in mind, because the price never passed through that level, it jumped over it.
This is the part where new accounts make the most mistakes, and the mistake is expensive.
There are broadly three kinds of product code:
• Intraday — the position has to be closed the same day. It gives more leverage and the broker closes it by itself at a fixed time.
• Delivery — the shares come into your demat and can be held for as long as you want. The full amount is required.
• Margin or carry forward products — for derivatives, where the position goes to the next day and margin has to be maintained daily.
The most common mistake is placing an order under the intraday code when you wanted delivery. The result is that the position is closed by itself in the evening, charges are applied for it, and you get whatever price was available at that time.
Many brokers offer an option to convert a position from intraday to delivery, but it requires the full amount and has to be done before a fixed time. Where this option is should be found on the first day — not on the day it is needed.
Every order comes with a validity — whether it is for today, or until a condition, or fill immediately otherwise cancel.
Most orders are only for that day. In the evening they go away by themselves, and the next day they have to be placed again. For people who assume their stop is permanently in place, this is a nasty surprise.
An after market order is one placed after the market closes and sent as soon as it opens the next day. Its advantage is convenience. Its risk is that it fills at the price prevailing at the next day's open, and the opening price can be very different given the overnight news.
Besides the basic two, some other forms are also available. They are not on every broker and their names can differ, but the idea is the same.
Common extra forms:
• A form that sends one large order in small pieces — the full size does not show in the order book at once, so the price does not move as much.
• A form that places the stop along with the entry — where a stop goes out by itself as soon as the order fills.
• A form with both stop and target along with the entry — all three together, and when one fills the others adjust by themselves.
The advantage of these is discipline — forgetting to place the stop is no longer possible. The drawback is that they often come with conditions: only intraday, only in some segments, and their own rules for modifying them.
A warning every broker writes and few people read: these orders live in the broker's system, not at the exchange. If the broker's system halts, that automatic part can halt too. So it is fine to see them as a safeguard, not as a guarantee.
The trading day is divided into a few parts, and each part has its own rules. The timings are set by the exchange and can change, so understanding their purpose is better than memorising them.
At the start of the day there is a short period in which orders are accepted but not matched immediately. At the end of that period a single price is determined at which the maximum quantity can match, and that becomes the day's opening price.
The purpose of this is that the effect of overnight news does not arrive in one jolt. If the price were set by the very first trade, one small order could decide the whole day's opening. This way the opening becomes a collective decision.
There is a separate period at the end of the day too. The closing price is not the price of the last trade — it is a weighted average of a final window. This is deliberate, so that no one can move the day's official price with one last trade.
The closing price is not just a number. A lot rests on it — mutual fund NAV, the mark to market of derivatives, the value of the index, and the margin calculation.
This is why volume rises in the last few minutes of the day. Many large participants have to do their work near that official price, so they come in right there.
For a retail account this means that price behaviour in that window can differ from the rest of the day, and taking the moves of that window as some deep information is often wrong.
The exchange publishes the list of holidays for the year in advance, and it is different every year. Checking this list is a small task that helps in two places — in estimating the settlement date, and in working out decay in derivatives, because decay runs on calendar days and keeps wearing away even on holidays. This is why people who sell premium become active before a long weekend, and it is also why a position left open over that period carries more risk — anything can happen in the world and the position does not close just because the market is closed.
There are some special sessions too. Once a year there is a symbolic Muhurat session, in which real trading happens and real settlement too — it is not a show, even though it is linked to a festival. Besides this, the exchange sometimes runs a special session to test its backup systems, in which members take part. For retail, all this means is that the prices and volumes of that day should not be read like those of an ordinary day, because participation is very low and even a small order can look big.
And one more thing that catches someone off guard every year — some holidays are for only one segment. Equity may be closed while the evening session of commodities keeps running. So a holiday does not mean the same thing for every segment, and assuming everything is closed while holding an open position can be an expensive mistake.
When you buy a share from someone, you do not know that person's name. Then how can you trust that they will fulfil their part?
The answer is the clearing corporation. After the trade is made it steps in between the two — for the buyer it becomes the seller, and for the seller the buyer. This way both only have to trust one institution.
This is a big deal and the market runs because of it. Without it you would have to check the other side before every trade. The price of this arrangement is the margin that is taken from you.
The margin taken from you ultimately goes up to the clearing corporation, because the risk sits there. The broker may keep its own cushion on top of that.
The margin model is statistical — it estimates how much loss is possible in a day, and takes that much in advance. This is why margin rises on its own when volatility rises.
One consequence of this surprises many people: on the day the market moves the most, you are asked for more money. This is not a mistake, it is the design of the system — when risk rises, the cushion rises too.
If a member fails to fulfil its part, the loss has to be covered from somewhere. For that there is a separate fund to which members contribute.
This fund exists so that one member failing does not stop the whole market. It is an insurance-like arrangement and is used very rarely, but its very existence is the foundation of trust.
For a retail investor the direct meaning is that the settlement of their trade does not depend on any one counterparty being sound. This is what distinguishes trading on an exchange from a private deal.
Not every broker is a direct member of the clearing corporation. Many brokers get their trades cleared through another member, called a clearing member.
It is useful to know this because many things related to margin and settlement run through that clearing member, and it may have its own rules and cushion. This is why the margins and cut offs of two brokers are not the same, even though the exchange's rules are the same.
There is another side to this, which is risk. In a structure where many brokers sit behind one clearing member, a problem with one link can show up in many places. This is not in retail's control, but knowing what the chain looks like helps on the day something gets stuck and the answer is coming from somewhere else.
There is some time between a trade happening and its completion. That time is called the settlement cycle, and India has shortened it several times over the years.
A shorter cycle is better because it carries less risk in between and money comes back faster. Its cost is that every step has to be made faster — the bank transfer, the transfer of shares, everything.
What the current cycle is and what applies to which segment is written on the exchange's site and keeps changing. So rather than memorising it, it is better to know where it has an effect — when the money will arrive, when the shares will arrive, and when that money can be used again after selling.
Two things happen on the settlement day. Shares are taken from the sellers — this is called pay in. And shares are given to the buyers — this is called pay out.
The same happens in reverse for money. Money is taken from the buyer and given to the seller. Both sides happen on the same day.
Until the pay out has happened, the shares have technically not arrived in your demat, even if they show in the app. The app often shows the position, not the holding — and these are two different things that confuse new people.
Settlement is not done trade by trade. The total you bought and the total you sold in the same name in a day are added up and only the difference is settled. This is called netting.
So if you bought a hundred shares and sold a hundred in the same day, no shares move at settlement — only the money difference is settled. This is why intraday trading is possible without the full money.
Netting also happens at the level of the whole system, and it gives a benefit many times larger than that. Lakhs of trades happen in a day and most of them cancel out against each other — only the leftover difference is actually transferred. Without it, settling this much trading would not even be practical.
A warning that follows from this: if you buy a name for delivery and sell part of it on the same day, you will not receive that many shares. Many people assume the two are separate transactions and both will show in the demat. They do not show — only the difference arrives.
Sometimes the seller is unable to deliver the shares at pay in. This can happen for several reasons — they did not hold those shares beforehand, or there was a delay at some other link.
In such a case the exchange runs a separate session in which those shares are bought from the market and given to the buyer. This is called an auction.
The person who could not deliver bears the full cost of that auction — and that cost can be much higher than the normal price, because in the auction the share has to be bought that day whatever the price.
The most common retail form of this is a person selling shares that had not yet arrived in their demat, or that are stuck in a pledge. So checking before selling that the shares are really free is a small habit that saves you from a big penalty.
If you hand over the shares before settlement, it is called early pay in. Its benefit is that the margin requirement on that position ends.
Many brokers do this automatically when you sell holdings. It also means that those shares cannot be taken back after that point, because they have gone.
It is useful to know this because many people who sell plan to buy back and think nothing has happened. In both the ledger and the demat these are two separate transactions, and each carries its own charges.
Immediately after selling, a balance starts showing in the ledger, but it cannot be fully used immediately. These are two different things and mixing them up is very common.
A part can often be used immediately for trading again. But to withdraw that money to the bank, settlement must be complete, because until then the money has not come from clearing.
So a withdrawal request is processed according to settlement, not according to when you sold. Many people take this to be a delay when it is the normal cycle of the system.
A practical habit: if you need money in the bank on a fixed day, the selling has to be done a few days before. Selling on the last day and expecting the money the same evening almost always ends in disappointment.
India has two depositories and both do the same job — keeping an electronic record of which share belongs to whom.
Your demat account is with one of them, and its number is in that depository's format. Shares can be transferred from one to the other, only the process is a little different.
The important point is that the shares are in the depository's record in your name — not in the broker's name. This is why changing the broker does not make your shares go anywhere; they stay where they are and only the broker attached to them changes.
You do not open an account directly with the depository. In between there is a depository participant — often the broker itself or a bank.
This is why you get two different numbers — one for the trading account and one for the demat. The two are linked to each other but they are different things, and their charges are different too.
A practical point: a demat account can keep running even when the trading account is closed. Many people only close trading when leaving a broker and the AMC on the demat keeps running, with debits continuing to arrive for years.
Filling in the nomination is a two minute job and almost nobody does it. Its full benefit shows when the account holder is no longer there, and at that time its absence turns into months of work for the family.
Some things that should be done once:
• Nomination — in both trading and demat, and in the bank as well.
• Pull out and keep the client master report — it has all the details of your account in one place.
• Verify the bank account linking, so that money does not get held up.
• Keep the email and mobile your own — not an intermediary's. This is a major safeguard.
• Develop the habit of reading statements that come from the depository — they come monthly or on every transaction.
The last point is the least done and the most useful. That statement comes straight from the depository, not from the broker, so it is an independent check. If it shows any transaction that you did not make, that should be raised immediately.
Changing brokers is not as big a job as people think, because the shares do not go anywhere. They stay in your name in the depository's record.
There are two routes. One — open a new demat account with the new broker and have the shares transferred from the old one. Two — keep the old demat account as it is and only add a new trading account, if that is possible.
The transfer has its own forms and its own charges, and it happens through the depository. It takes a few days, so it should not be done in a week when you need to sell something.
When changing brokers, these things are often missed:
• Not closing the old demat account — whose AMC charges keep arriving for years.
• Not downloading the statements of the old account — they become very hard to get later.
• Not keeping a record of the cost basis of the old holdings — which is needed at tax time.
• Not getting a pledge or any lien released first, which is what holds up the transfer.
The second point turns out to be the most expensive. Getting a years-old P&L statement from a closed account becomes almost impossible, and that is the very statement that is needed most at tax filing time. Downloading everything before closing is a ten minute job.
The contract note is the document where the whole truth is written. In it, brokerage is only one line and many other lines sit below it.
Common charge heads that appear:
• Brokerage — the broker's own charge. Only this one is in the broker's hands.
• Exchange transaction charges — on turnover, the exchange's.
• Securities transaction tax — whose rate differs by segment and is different on delivery, intraday, futures and options.
• Stamp duty — by state, on buying.
• GST — on brokerage and some charges.
• SEBI turnover fees — very small but on every trade.
• DP charges — on selling, per scrip, separate from brokerage.
The rates of all these keep changing and this article does not quote them. What does not change is that their total is often many times the brokerage — which is why "zero brokerage" never means zero cost.
The list above is what comes in writing. There are two big costs that are written nowhere and are often the biggest.
The first is the spread — the gap between bid and ask. You buy at the ask and sell at the bid, so on every round trip that gap is your cost. It is hidden inside your entry price.
The second is slippage — the difference between the price you had in mind and the price you got. This is highest in large orders and less liquid names.
Adding these two, for very active traders the real cost works out to many times the brokerage. And because it does not show anywhere as a single line, it also does not get any attention.
The contract note comes after every trading day and it is the legal record of that day — not the app screen, that document. In it every trade is on a separate line, with its price, quantity, time and order number, and below that all the charges broken up under separate heads. If there is ever a dispute over a trade, this is the paper that is used, and on this basis the matter goes forward at the exchange or in arbitration. This is why it is not necessary to open it and look every day, but it is necessary to keep it safe.
While reading, three things should be looked at first. First — are the trades written the same as the ones you made, in both number and price. Second — the total of the charges, which should be worked out as a percentage to see how much it comes to relative to the size of the trade; this number often surprises, and it changes the decision on trading frequency by itself. Third — any line that you do not understand, because that is often a penalty, a DP charge or a debit for something old.
A habit that saves a lot of time later: at the end of every year, download the whole year's contract notes and ledger and keep them in one folder. The broker does not keep these documents online forever, and after an account is closed almost never. At tax filing time, or when answering some old question, this one folder turns the whole search into a ten minute job that would otherwise not be possible.
Some charges are not linked to trades — they are for keeping the account. AMC is the most common. Besides it, there are also charges linked to physical statements, call and trade, and pledges.
These should be reviewed once a year. Even an inactive demat account keeps incurring charges, and many people have two or three old accounts lying around that they do not even remember.
Closing or freezing an account that is not in use is a small job. Its benefit is more about safety than about cost — a forgotten open account is an open door.
The rule now is that the required margin must be available before a position is taken. Earlier there was some concession that was being misused, and this strictness came because of that.
This means the broker cannot give you more leverage than the concession allowed in the rules. For people who were used to very high intraday leverage, this was a big change.
One good result of this is that a small account can no longer take a very large position. These limits are irritating and they are what protect people who are still learning.
Margin is not calculated at the end of the day, but several times during the day. The highest requirement among those snapshots is taken.
This means that even in the middle of the day, if your position created a requirement larger than the margin, it will be caught — even if you fixed it by evening.
A penalty is charged for a shortfall, and it appears as a separate line in the ledger a few days later. Many people cannot make sense of those debits because they do not seem connected to the day the mistake happened.
Shares lying in your demat can be used for margin. For that they have to be pledged, and a haircut is applied — meaning you do not get the full value, you get a part of it.
The pledge process now happens with the client's own consent — with an OTP or authorisation. This change also came after earlier misuse, where a client's shares were used without their knowledge.
Two things should be kept in mind. First, a part of the margin obtained against collateral must also be in cash — collateral alone cannot do the whole job. Second, a pledged share cannot be sold immediately; it has to be released first, and that takes time.
The second point is what becomes a common cause of short delivery. A person thinks the shares are with them, sells, and those shares are stuck in a pledge.
In derivatives your loss does not wait for expiry. At the end of every day the position is revalued at that day's price and that day's profit or loss is settled.
So a position that was going to turn out right in the end can ask for your money on some day in between. If that money is not there, the broker asks you for it, and if you do not give it, it can close the position.
This is where many accounts break — the analysis was right but the road in between was not survived. That is why keeping a part of the cash always free in derivatives is a necessity, not a precaution.
One more thing — on the day the market moves the most, two things happen together: your MTM loss arrives and the margin requirement rises too. It is this combination that often creates a forced exit, and that is almost always at the worst price.
Every stock has a band outside which it cannot go in a day. That band is called the circuit limit and it can be different for each name.
Its purpose is to stop a very large move in a single day, so that panic gets time to cool. In names with derivatives this band is often very wide or almost absent, because the route for hedging has to be kept open there.
The practical meaning of a circuit being hit is that no one is left on that side. At the lower circuit there are only sellers, so your sell order stands in the queue and does not fill. This is a real risk that should be thought through before taking a position in small names.
Such bands exist for the whole market too. When the index falls by a fixed percent, trading is halted for some time, and on a larger fall for the whole day.
This is a very rarely used tool and it is for the days when something very big happens. Its purpose is the same — to give a break so people can think.
The lesson for a retail account is that when the market closes, positions do not close. They stay open and the result is known when the market opens again — often with a big gap.
Some names are put under extra watch when unusual activity appears in them — a very fast change in price, or trading among very few people.
Common forms of watch, which change your trading more than the price:
• Trading allowed in delivery only — intraday shut, meaning the full money will be needed.
• Very high margin, which makes taking a position expensive.
• Periodic call auction — meaning matching only a few times a day instead of continuous trading.
• Removal from derivatives, if the name was in F&O.
The names on these lists and their exact rules keep changing with time, so the right way is to check the status of that name on the exchange's site before taking a position. This small check protects you from names where getting in is easy and getting out is not.
Some names are placed in a segment where intraday trading does not happen at all. Every purchase has to be taken in delivery and for every sale the shares must already be in the demat.
Its purpose is to stop speculation-like trading in that name. The effect is that liquidity falls, because those who wanted to get out the same day never come in.
The most common problem for new people is that they buy that name thinking of intraday and cannot close the position — that option simply does not exist that day. After that the full money has to be paid and delivery taken.
This is why checking the segment before placing an order in an unfamiliar name is a small habit that saves a big headache. This information is on the exchange's site for every name.
When a company gives something — a dividend, a bonus, or something else — it has to be decided who gets it. For that a date is fixed, and the list is made according to the records on that day.
The day before it is the day when the share starts trading without that benefit. Whoever buys before that day gets the benefit; whoever buys on that day or after does not.
This is why the price adjusts by itself on that day. A fall in price equal to the dividend is not a loss, it is only accounting. Every year many new people are startled on that day and take it as bad news.
With both bonus and split the number of shares goes up and the price falls in that proportion. Your total value stays the same.
The difference is in accounting — a bonus is given out of reserves and in a split the face value is broken down. For the investor the immediate effect of both is almost the same.
One real benefit of both is that the price becomes smaller, so more people can buy it and liquidity may rise. It does not create value, but it is not completely useless either.
In a buyback the company buys back its own shares. This increases the share of the remaining holders. Participation here is a choice — you can tender and you can also keep.
In a rights issue the company gives existing shareholders the right to buy new shares, often below the market price. This right can also be traded if you do not want to use it.
One thing worth noting in rights — if you do nothing, the right goes to waste and your stake shrinks. This is one of the few cases where doing nothing is itself an expensive decision.
In a demerger a company separates a part of itself into a different company, and shareholders receive shares of that new company.
Its accounting is the most tangled. The cost of the old holding is divided into two parts — one part for the old company, one for the new. The company announces that ratio and the same is used for tax.
In between there is a period when the old company has gone ex but the new one is not yet listed. In that period a value shows in your demat that has no price, and that can go on for months.
This is why both the chart and the P&L around a demerger look confusing. The most useful habit is to read once the company's circular that gives the ratio and the cost split, and to keep it in the folder where the tax papers go.
After every corporate action the old chart is adjusted, so that a sudden big drop does not show on the chart after a split.
Most platforms do this automatically but not all do it the same way, and there is quite a difference in how they adjust for dividends. This is why the old chart of the same name can look slightly different on two platforms.
The practical effect is for those who look at old levels. An unadjusted chart shows old levels in the wrong place, and any analysis built on it is automatically wrong.
Most IPOs come with a band and within that band people fill in their bids. After all the bids, the price is arrived at where the issue gets fully sold.
A separate portion is reserved for different categories — large institutional investors, other institutions, and retail. Each category has its own count of how much it was subscribed.
For retail there is a limit of one small lot, and if more bids come in that category, allotment is by lottery. This is why putting in a large amount does not improve the chance in the retail category — which many people do not know.
In today's system the money for an IPO does not leave your account immediately. It is blocked and is debited only when the allotment happens.
This means that during that period you keep earning interest on that money, and if there is no allotment it is released automatically.
The most common problem here is technical — the mandate not being approved, or a wrong UPI id, or the bank not supporting it. All of these can be fixed at the time of application, so applying in the last hour of the last day leaves no time to fix those mistakes.
On listing day the first price comes out of a separate process, not from ordinary trading. After that a separate circuit band applies to that name for some time.
Volatility is very high that day and the liquidity pattern is unlike other days. For those who came only to sell on listing, that day often gives the worst price — because at that time there are the most sellers.
And one thing that is often overlooked: the shares received in an IPO also arrive in the demat only after settlement, and they have the same plumbing. They do not run on some separate rule.
Before listing there is talk of an informal market where a price for that IPO is quoted. That number is given a lot of importance and two truths about it should be known.
First — it is not on any exchange, it has no regulator, no settlement guarantee, and no verifiable record. The number quoted is on someone's say-so.
Second — it is the number from a very small and thin market. In such a market it is very easy to move the price, and that number can be used to create demand.
So taking that number as information and building your decision on it are two different things. The real price on listing day can turn out very different from that number, and no one can be asked to account for that difference.
The regulator of the securities market in India is SEBI. It makes rules, registers intermediaries, and takes action on wrongdoing.
The banking and currency part is with the RBI, and on some things the two have a relationship — such as foreign investment or currency derivatives.
The exchange and the clearing corporation are themselves a level of regulator too — they impose rules on their members. So a complaint has several routes and they should be used in order.
Before working with any intermediary, these checks can be done:
• Its registration number, which can be looked up on the regulator's site.
• Its complaints data — which the exchange makes public every month.
• The full list of its charges, not just brokerage.
• In the case of advisory — whether it is registered, and in which category.
The last point is the most overlooked. No one who promises a guaranteed return can be a registered advisor, because that promise itself is against the rules. This one line catches almost every fraud at the first meeting.
People take KYC as a paperwork hassle, but its structure is actually for your benefit. Once it is complete it goes into a central record, and after that other intermediaries can take it from there — meaning it is not necessary to give everything from scratch everywhere. This is why opening a new account today is a matter of minutes, whereas it used to take weeks.
The other side of this is that the record can become outdated. If your address, mobile or bank changed and it was not updated, it will get stuck some day. The most common form is that when you withdraw money it does not go to the bank because the detail there is old. So checking your KYC details once a year is a small habit that saves you from a big obstruction.
And one important thing: the mobile and email given in KYC must be your own, not an intermediary's. This is not just a formality — that is the channel through which the depository and exchange send you information directly. If it is with someone else, you no longer have independent information about your own account, and in that situation all the other safety becomes useless.
When something goes wrong there is an order to follow, and the order should be followed, otherwise the matter stops at the start.
First, a written complaint on the broker's own grievance channel. Written so that a record exists — a phone call leaves no record.
After that the exchange's investor grievance mechanism, and after that the regulator's portal. In both these places your complaint is tracked with a number and the intermediary has to reply.
Beyond that is the route of arbitration, which is a quasi judicial process. To go that far, documents are necessary — contract notes, the ledger, and the emails you sent. This is why putting everything in writing from the start is the best habit.
There is a fund that comes into play when a broker is unable to meet its obligations and its clients suffer a loss. Its purpose is to protect small investors to some extent.
Its two limits should be clearly known. First — it has an upper limit, and that applies to every claim. Second — it is only for loss caused by the intermediary failing, not for loss in the market.
The second point is the most important. No arrangement protects you from prices falling. The whole regulatory structure exists to ensure that the game stays fair and your share stays yours — not that your decision turns out right.
So knowing how far the protection goes is as important as knowing that it exists. People who take it as a complete guarantee often end up taking more risk in the very part where there is no protection at all.
The whole purpose of all this information is that some mistakes should not happen at all. Those mistakes are not mistakes of analysis, so they are never discussed.
The most common mechanism mistakes:
• Wrong product code — an order in intraday thinking of delivery, and closed automatically in the evening.
• Selling shares that are in a pledge or have not yet arrived in the demat — and the auction penalty.
• Not understanding the physical settlement of an ITM option in the expiry week.
• Taking a position in a name in a ban period or under surveillance and then not being able to hedge.
• A margin shortfall caught in an intraday snapshot, and a penalty seen weeks later.
• An AMO order that filled at a big gap the next day.
One thing is common to all of these — none of them happened because the market was wrong. They all happened because one part of the system was not known. And each of them could have been avoided by reading once.
A direct benefit of understanding the plumbing is that most frauds get caught on their own, because they are violating some part of this system.
Some forms that appear again and again, and why they are wrong:
• A promise of guaranteed returns — no registered intermediary can make such a promise, it is against the rules.
• Asking for your account login or OTP so that they can "trade for you" — no legitimate arrangement involves this.
• Asking for money in a person's personal bank account — real money always goes in the name of a registered intermediary.
• Profit screenshots shown outside the app — they are proof of nothing, and the real accounting is always in the ledger and the contract note.
• Pressure to buy an unfamiliar name immediately, or the "only today's chance" line.
One line that works in almost every case: money should always be going out of and coming into your own registered account, and you should get a record of every transaction directly from the exchange or the depository — without anyone telling you.
And one more — always keep the email and mobile your own. From the day they are someone else's, you no longer have your own information, and that is almost the first step of every big fraud.
When opening a new account or moving into a new segment, some things should be done on the first day. It is a fifteen minute job and it works for years.
First day checklist:
• Fill in the nomination — in both trading and demat.
• Read the product codes and understand the difference.
• Check the broker's auto square off time and its charges.
• Look through the full list of charges once, not just brokerage.
• Save the call and trade number — for the day the app does not work.
• The email and mobile for statements coming from the depository should be your own.
• Make one very small trade and see the whole cycle once — order, contract note, ledger, and demat credit.
The last point is the most useful and the least done. Deliberately making a very small trade just to see how each step looks teaches more than reading this whole article.
When something gets stuck, the first question should be which stop it is a matter of. After that the place becomes clear by itself.
The problem and its stop:
• Order did not go, or the app did not work — a broker matter.
• Order went but did not fill — a matter of the exchange's order book, but the broker is still the one to ask.
• Got a worse price than expected — a matter of liquidity and order type, and often nobody's fault.
• Shares not in demat — a settlement matter; check the date first, then ask.
• A strange entry in the demat — pull out the depository's statement, it is an independent record.
• A debit in the ledger that you do not understand — a matter of the contract note and charges; often a penalty or a DP charge.
• Position closed by itself — a matter of the product code and auto square off.
The benefit of this one table is that it sends you to the right place. Most people ask in one place for everything and do not get an answer there, because the matter does not belong to that place at all.
Every point in this whole article has an official source, and that source is the real answer — because rules keep changing and any written article becomes outdated after some time. On the exchange's own website, each name's segment, its circuit band, its surveillance status, lot size, and the list of holidays — all are in one place. That is the place to look before taking a position, rather than trusting a forwarded message.
On the regulator's site there is a list of registered intermediaries, where the registration number of any name can be entered and checked. The depository gives access on its site to account-related information and statements, and it is a route completely separate from your broker — that is its greatest value. And every broker has to keep the full list of its charges public; finding that page takes two minutes and it often tells you things that are written nowhere else.
Bookmarking these three places once is the start of a habit that works for a long time. The question is not whether you remember everything — the question is whether, when the need arises, you know where to look. This article is the map for that; the actual numbers should always come from the official page built on that map.
All this information gives no return. Its benefit is of a different kind and it shows when something goes wrong.
The first benefit is that many mistakes simply do not happen. Once you know the product code, pledge, ban period, physical settlement — those expensive outcomes do not come.
The second benefit is trust — the kind of trust that does not come from a tip. When you know that your shares are in the depository's record in your name, that its statement comes straight to you, and that there is a written route for complaints, the market stops being a magical place. It becomes a system whose parts you can name.
And the third, least thought of benefit — after this knowledge, your time goes where it matters. People who do not know the mechanism spend half their time worrying about things that are normal behaviour of the system — an adjusted price, a late credit, a ledger line they did not understand. Saving that time is a big win in itself.
This whole part is something to read properly once, not to repeat daily. After that this knowledge goes into the background and comes forward only when something is needed — and that is exactly its right form. The job of plumbing is not to be seen; its job is that on the day it does show, you know what you are looking at.
This article is educational only — not a buy or sell recommendation, not a claim of guaranteed returns, and not advisory. Rules, rates and mechanics are changed by the exchanges, SEBI and RBI from time to time, so verify every number yourself with your broker or an official source.