Cash market trading is intended for the people who hope to buy shares with a purpose of taking shares. They need to allocate the full sum towards the purchase of the shares at the time of placing order. The trading account must have adequate funds to take care of the overall cost of the acquisition of the shares, brokerage and additional charges.
For trading in the cash segment everyone need to have a Demat Account to be opened with us. In a demat account, shares and securities are held electronically instead of the investor taking physical possession of certificates.
The demat account number is quoted for all transactions to enable electronic settlements of trades to take place. Every shareholder will have a demat account for the purpose of transacting shares.
Access to the demat account requires an internet password and a transaction password. Transfers or purchases of securities can then be initiated. Purchases and sales of securities on the demat account are automatically made once transactions are confirmed and completed.
A derivative is a financial instrument which derives its value from the value of underlying entities such as an asset, index, or interest rate. "A derivative is a financial contract whose value is derived from the performance of underlying market factors, such as interest rates, currency exchange rates, and commodity, credit, and equity prices. Derivative transactions include an assortment of financial contracts, including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards, and various combinations thereof.
This is one of the most traded types of class in India in which there is an option of Futures & Options. There are two groups of derivative contracts, the privately traded Over-the-counter (OTC) derivatives such as swaps that do not go through an exchange or other intermediary and Exchange-traded derivative contracts (ETD) that are traded through specialized derivatives exchanges or other exchanges.
According to the Legal Framework in India we can only trade in ETD.
The trading in this can be done by paying the margin money for the contract the entire money is not supposed to be paid at the time of execution of the contract. Buying a Futures contract one need not pay the entire value of the contract but just the margin. This margin sum is defined by the exchange.
Example: A trader buys a 1000 Futures contract of a particular company each share costing 50 Rs. This will sum to Rs. 50000 (1000 X 50 Rs). The trader need to pay only about 15% to 20% of that sum and this sum is called the margin amount. Assuming 15% the trader need to pay Rs. 7500 & not Rs. 50000.