Knowledge Base

Equity Market – FAQs

Q. What is meant by stock market ?

A stock market is a private / public market where securities of companies and their derivatives are traded at a predefined / agreed price. Usually these securities are listed on stock exchanges. A stock market consists of few stock exchanges where the listing and trading takes place. All stock markets are regulated by some organization designated by the Govt.

Q. How does a stock market function ?

A stock market has many members who co ordinate for various activities in the process of placing orders, their execution and settlement etc. A person who desires to buy / sell shares in the stock market, can place his order through the broker either in the traditional manner or can place an online order himself through the terminal provided by the broker. When an order is placed, the order is sent to the exchange and then the order resides in the Exchange system till all conditions of the order have been met with. When the conditions of the order are fulfilled, the order is executed and the shares purchased / sold are delivered to the buyer / obtained from seller through the broker.

Q. Who regulates the stock market ?

In India, the stock markets are regulated by SEBI (Securities and Exchange Board of India). There are several stock exchanges in the country out of which the two most prominent exchanges are BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). The signature index for BSE is Sensex while for NSE, it is NIFTY.

Q. What is Rolling Settlement ?

Rolling Settlement is the mechanism adapted by the Indian Stock markets for faster settlement of trades. In Rolling Settlement, trades executed during the day are settled on net obligations basis. In India, settlement of trades executed is done on T+2 basis where T stands for Trading day and +2 stands for two working days excluding the trade day. Net the effect of shares bought or sold is on the third day from trade day.

In this kind of settlement, two trading days are considered for settlement where Saturday, Sunday, Bank Holidays and trading holidays are not considered as working days for settlement. Hence, a trade done on Monday will get settled on Wednesday.

Q. Why invest in shares ?

Investing in shares is like investing into ownership of a company which no other investment instrument can give you. Equity investment gives you an opportunity to become a part of the company ownership and also gives you regular returns on your investment as dividend income or through price changes, unlike any other investment instrument which either gives you fixed income or meagre returns and no owned share in the same.

You can also enjoy the flexibility of staying invested as long as you wish to, take advantage of the price movements and utilize the liquidity by investing into equity. In an overall view, equity investment is better than any other investment.

Q. Can I invest in any share ?

By the virtue of investing in shares, you can invest into any share but since investing in equity is like owning a part of the company, you should be careful about which share are you investing your money.

The profits that you earn from such investment will largely depend on the shares that you have purchased. If you have invested in a low earning share, no matter much you invest, it is not going to fetch you the same kind of return as a high earning share.

Commodity Market – FAQs

Q. What are commodity futures ?

Trading in commodity derivatives first started to protect farmers from the risk of the value of their crop going below the cost price of their produce. Derivative contracts were offered on various agricultural products like cotton, rice, coffee, wheat, pepper, etc. The contractual agreement between the two parties for exchanging the commodity of a certain specified quantity and quality, at a certain time and price in future, while entering into the contract is known as Commodity futures contract.

Expiry date for different contracts can vary from one contract to another. In commodity derivatives, a buyer and a seller agree upon a price where the buyer is obliged to buy the commodity and the seller is obliged to deliver the commodity on the pre – specified date and price.

Q. Why trade in commodity futures ?

Commodities are natural resources used in day to day life. Unlike financial futures; commodity futures do not carry the risk of investors going bankrupt or declaring losses. Commodities have upper and lower price bands. i.e. Beyond a certain price level commodity prices cannot fall as the producers will stop its production and commodity prices cannot raise beyond a certain price level as people will look for availability of substitutes.

Futures’ trading in commodities is transparent and facilitates fair price discovery on account of large scale participation of entities associated with different value chains and reflects views and expectations of wider section of people related to that commodity. This also provides effective platform for price risk management for all segments of players ranging from the producers, the traders, processors, exporters/importers and the end users of the commodity.

In commodity futures, it is necessary to distinguish between investment commodities and consumption commodities. An investment commodity is generally held for investment purposes whereas consumption commodities are held mainly for consumption purposes. Gold and Silver can be classified as investment commodities whereas oil and steel can be classified as consumption commodities.

Q. Is commodity trading only available in India ?

No, Commodity trading is not only available in India but is a very popular trading practiced all over the world also. Most of the developed and developing countries have their own commodity markets. The first commodity exchange was started in 1849 in United States. Even a communist country like china has 3 commodity exchanges. Commodity trading is a very popular concept in rest of the world also.

Q. What are the advantages of commodity future trading ?

The commodity derivatives market is a direct way to invest in commodities rather than investing in the companies that trade in those commodities.

For example, an investor can invest directly in a steel derivative rather than investing in the shares of SAIL. It is easier to forecast the price of commodities based on their demand and supply forecasts as compared to forecasting the price of the shares of a company — which depend on many other factors than just the demand — and supply of the products they manufacture and sell or trade in. The basic advantage of commodity future trading is for hedgers and for users of that commodity. A farmer may hedge his upcoming harvest at higher prices in the commodities markets to avoid any downfall in the market price in future while an automobile company may hedge its copper requirement at lower prices to secure its supply against any price rise in future. For an investor, it is an alternate investment class. What is the difference between commodity trading in cash and futures? Spot dealing in commodities where payments and deliveries are made immediately refers to commodity trading in cash. A contract where deliveries and payment are made at a pre fixed future date or time as future trading in commodities. In cash trading, the entire payment is made while in futures trading only a small percentage of the entire contract value (margin) needs to be paid immediately.

Q. Which commodities are available in commodity trading?

Following commodities are available in commodity trading:

  • Precious Metals: Gold, Silver Platinum
  • Energy: Crude Oil, Natural Gas, Furnace Oil
  • Base Metals: Aluminum, Copper, Nickel, Zinc, Lead, Steel ingots


It is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. A company selling the insurance is an insurer, or an insurance carrier; the person or entity buying the insurance policy is known as the insured, or policyholder. A premium is known as the amount of money to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.


Q.   What are Derivatives ?

A financial contract/agreement that does not have any independent value of its own, but derives its value from some other asset, index or anything that is quantifiable (called underlying) is known as a derivative. For e.g. Sugar is a derivative and sugarcane is the underlying. Fluctuations in sugarcane prices will influence the price of sugar. Derivatives contracts have the price fixed/agreed upon at the start of the contract and is essentially settled on a future date. The underlying could be anything ranging from Stocks, bonds, commodities & Indices to Interest rates, currencies, Weather & Freights. The derivatives contract prominent in Indian market is Futures and Options.

Q.   What is Futures contract ?

It is a contract to buy or sell specified quantity of an underlying asset at a specified future date, at a specified price. These contracts are traded and settled on exchanges. The quantity (Lot size) and the Settlement date (Expiry date) is fixed in advance. In India, futures are cash settled. It is a leverage product as compared to cash market. For example: In cash segment funds required for buying 250 shares of ACC @ Rs. 1500 are Rs. 3,75,000 . If the price increases to Rs. 1600 you make a profit of Rs. 25,000 (250*100) in Cash market.

Whereas in Futures market, you pay a margin to take a futures position. You pay only Rs. 75,000 (assuming 20% margin for 1 lot of ACC = 20%*250*1500) to take a position of Rs. 3,75,000 and if price increases to 1600 you will make a profit of Rs. 25,000

Q. Which Futures contracts are available for trading in Indian market ?

The list of Futures contracts available for trading in Indian market is updated on NSE website (

Q. What is Lot size ?

Unlike Cash market where you can buy or sell a single quantity of scrip, there is a group/basket of stocks which forms the “lot” in the Derivative market. When you trade in Futures market you buy/sell in “lots”.

Eg. if you buy 2 lots of Axis Bank, you are buying 2 baskets of 250 shares each.

Q. What are the different types of settlement obligation if I trade in Futures ?

The settlement obligation which arise in Futures trading are Brokerage which will be debited at the end of the day of the trading day If any position is squared off, profits, if any, will be credited on T+1 day in the linked savings account. In case of loss, the same shall be debited from the account on the same day.

Q. What is the margin requirement for Futures trading ?

For Margin Requirement please refer ‘Know Your Margin’ link at the time of placing an order. The path for Know Your Margin is Trading > Buy/Sell

Q. Is the margin percentage same on all contracts ?

No, the margin percentage may differ based on the liquidity and volatility of different stocks/ contracts. However, Futures contracts within the same underlying will generally have same margin percentage.

Mutual Funds

The mutual fund itself is a trust registered under the Indian Trust Act, and is initiated by a sponsor. The sponsor then appoints an asset management company (AMC) to manage the investment, marketing, accounting and other functions pertaining to the fund.

Every mutual fund has a fund manager who invests the money collected through subscription from different investors on behalf of the investors by buying / selling stocks, bonds etc. Various funds and schemes with different objectives can be introduced under the umbrella of a single Trust name.