What does settlement cycle mean?
The settlement cycle is the time required for a trade to be settled. On Indian exchanges, the settlement cycle for all traded instruments is T+1 day, with T representing the trading day.
Example scenario (Equity segment)
Buying shares:
- On Monday (T day), shares are purchased.
- The shares are credited to the demat account on the following day, Tuesday (T+1 day).
Selling shares:
- On Monday (T day), shares are sold.
- On Tuesday (T+1 day), the funds are credited to the trading account. These funds can be withdrawn from the trading account only after Tuesday evening.
Example scenario (F&O segment)
- On Monday (T day), a long/short futures or short position is initiated.
- On Tuesday (T+1 day), any credit obligation of funds in the form of Mark to Market (MTM) or premium is settled to the trading account. These funds can be withdrawn from the trading account only after Tuesday evening. Any debit obligation of funds is settled on the same day, i.e. T day from the trading account.
If there's a settlement holiday, the settlement process will take an additional day. To learn more, see What is a settlement holiday and its impact?
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Now, let's delve into the concepts mentioned in the article you provided:
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Trading and Markets:
- This encompasses the buying and selling of financial instruments, such as stocks, bonds, and derivatives, in various financial markets. It involves participants like traders, investors, and brokers interacting to facilitate transactions.
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Trading FAQs:
- Frequently Asked Questions related to trading, which may cover a broad range of topics, including market mechanics, order execution, and account management.
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Kite:
- Kite is likely a trading platform or software used for executing trades. It could be specific to a particular brokerage, and it might offer features like real-time market data, order placement, and portfolio management.
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Margins:
- Margins refer to the collateral required to open and maintain a trading position. It ensures that traders have sufficient funds to cover potential losses.
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Product and Order Types:
- Different financial products (e.g., stocks, futures, options) and order types (e.g., market orders, limit orders) that traders can use to execute their strategies.
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Corporate Actions:
- Events initiated by a company that can impact its stock, such as dividends, stock splits, mergers, or acquisitions.
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Settlement Cycle:
- The time it takes for a trade to be settled, wherein ownership of securities and funds are exchanged. In the Indian context mentioned, it's T+1 day, with T representing the trading day.
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Settlement Holiday:
- A day when the regular settlement process is halted, usually due to a market holiday. This can affect the normal T+1 settlement cycle.
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Depository Participant (DP):
- An entity that facilitates the holding of securities in electronic form and enables electronic transactions. DP names are relevant in the context of demat accounts.
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Mark to Market (MTM):
- A process in futures and options trading where the daily changes in the value of open positions are settled. It involves adjusting account balances based on the market value of the positions.
Understanding these concepts is crucial for anyone involved in trading and investing, ensuring informed decision-making and effective risk management. If you have further questions or need clarification on any specific topic, feel free to ask.
