Getting set up, and how a trade actually works

What this cluster is for

Cluster 1 explained the market. This cluster explains your account — the part with your name on it, your money in it, and a set of charges attached to it that almost nobody has ever added up.

It is the most practical cluster in this wiki, and it contains the 4 strongest actions in the whole thing. Each one takes minutes. Each one uses a document you already have and have never opened.

• Add up every line on 1 real contract note that is not the price of the shares, and see what a single trade actually cost you.
• Open the depository statement that arrives by email and reconcile it against your broker app.
• Check whether a nomination is registered on your demat account. Most readers will find it is not.
• Add up a year of charges from your broker's own report and put it beside the year's profit.

By the end of this cluster you will be able to:

• Say where your shares are actually held, and prove it from a source that is not your broker
• Read a contract note, line by line, and state your cost as a percentage
• Choose an order type deliberately instead of accepting the default
• Know, before you buy, how easily you would be able to sell
• Tell what a block deal disclosure does and does not tell you
• Explain why your money arrives a day after you sell, and what can go wrong in between

Nothing here names a broker to use or a stock to buy. Every rule and rate changes, which is why any figure you can act on carries a marker. Verify before you rely on a number.

The reading order

The first 4 articles are about setting up. The last 7 are about what happens when you press the button. Read them in order the first time.

The account

1. Brokers, and the accounts you need — 3 accounts in India, 1 in the United States, and always 3 jobs.
2. Opening an account, and what KYC actually is — every field maps to a real failure. Your number, your email, your bank.
3. Where your shares actually live — a share is a row in a database. Find out whose.
4. Nomination and transmission — in India a nominee receives and the will decides who owns. Most accounts have neither.

The trade

1. Placing an order, and order types — if you cannot name the worst price you would accept, you do not have a trade.
2. Block deals and bulk deals — the disclosure names the buyer. The reason belongs to the seller.
3. Bid, ask, spread and settlement — execution is an agreement. The transfer happens a day later.
4. Trading rules every beginner must know — a stop does not work at a circuit. There is nobody on the other side.

The bill

1. Delivery against intraday, and what it costs — delivery costs more per trade and less per year. Intraday is the reverse.
2. Short selling — a long position has a floor. A short position has a deadline and no ceiling.
3. The hidden leak: charges and taxes on every trade — costs are charged per attempt. Profits are not.

The checklist

Every article ends in an action. Collected here, they are 1 afternoon's work, and they are the most valuable thing in this cluster. Tick them off.

Do these once, this week

• Check the nomination on every demat account and mutual fund folio. In the United States, check the Transfer on Death or beneficiary designation. (4)
• Open the consolidated account statement from CDSL or NSDL and reconcile it against your broker app, company by company, quantity by quantity. (3)
• Check the pledged column on that statement. Anything you did not pledge, raise in writing the same day. (3)
• Confirm the mobile number, email address and bank account on the account are all yours and nobody else's. (2)
• Look up your KYC status from outside your broker's app. In India, a KRA website with your PAN. (2)
• Write down your broker's annual maintenance charge, DP charge on sale, pledge charge and auto square-off charge. (1)

Do this once a year

• Download the year's profit and loss report. Add every charge line, plus the maintenance charge and any margin interest. Divide by the year's realised profit. (11)
• Look at the largest single charge line and halve it. (11)
• List holdings at an unrealised loss and check them against the tax year end — 31 March in India, 31 December in the United States. Read the wash-sale rule first if you hold US shares. (11)

Before you buy anything

• The stock's price band as a percentage of price. A 2% or 5% band means you may not be able to exit for days. (8)
• Whether it appears on a surveillance list — ASM or GSM in India. (8)
• The lot size, if it is a derivatives contract. Multiply by the price. That is the real position. (8)

Before you press the button

• Name the worst price you would accept. That is your limit order. (5)
• No market orders unless the spread is narrow, the depth is deeper than your order, and it is not the first or last minutes. (5)
• If you are selling something bought recently, check it is settled before you sell it. (7)

Once, on a single real trade

• Open 1 contract note. Add every line that is not the share price. Divide by the trade value. Double it for the round trip. (9)
• Compare that percentage against your average winning trade. (9)

Before your first short position

• Your maximum loss, your deadline, your daily cost, and what closes the position automatically. All 4, in writing. (10)

India and the United States, equally

This is the cluster where the 2 countries diverge most, and the divergences are not decoration. They change what you should do.

• Indian shares sit in your own account at a depository, which you can check. US shares sit in street name, protected by SIPC coverage instead.
• India charges tax on the transaction. The United States charges tax on the gain, and restricts loss harvesting with the wash-sale rule.
• US brokers are paid through payment for order flow. Indian brokers are not.
• A retail short in India is effectively a same-day position. A US retail short can be held for months.
• India uses fixed daily price bands. The United States uses dynamic limit up-limit down bands and market-wide halts.

A great deal of investing material reaching Indian readers was written for American conditions. Copied without translation, it costs money quietly. The "Where they differ" section in each article is the translation.

Related

• ← All 22 topics
• How the market works
• The tools