The stock broking glossary

A trading account is the account opened with a SEBI-registered broker that lets you place orders on the exchanges. It is distinct from the demat account, which holds the shares, and from the bank account, which holds the money.

Most brokers open all three as a bundle, but they are separate relationships: the trading account is with the broker, the demat account with a depository participant, and the funds stay with your bank.

The unique client code identifies you to the exchange. Brokers must register every client’s UCC along with the PAN before accepting a single order, and every trade is tagged with it.

The requirement exists to prevent client code modification — the practice of reassigning profitable and loss-making trades between clients after the fact.

KYC is the identity verification every intermediary must complete before onboarding a client: PAN, proof of identity and address, bank proof, signature and income details for derivatives eligibility.

KYC records are held centrally so that a client verified once can be onboarded elsewhere without repeating the whole process. Periodic re-KYC is required based on the client’s risk category.

A KYC Registration Agency maintains the central KYC record for securities market clients. Once an intermediary uploads a verified record, other intermediaries can fetch it instead of collecting documents again.

KRAs also independently validate PAN, Aadhaar-seeded records and contact details, and flag records that fail validation as on-hold — which is what blocks trading in an otherwise complete account.

In-person verification confirms the applicant’s physical existence and identity. It was once a branch visit; it is now normally a short recorded video in which the applicant shows their PAN and reads a code.

It is mandatory for account opening, and the recording forms part of the broker’s KYC records.

A demat account holds securities in electronic form with NSDL or CDSL. Buying credits shares to it; selling debits them.

It is operated through a depository participant, which is often — but need not be — the same firm as your broker. The trading account and the demat account are linked so that settlement can flow between them.

Funds may only be received from, and paid out to, a mapped bank account held in the client’s own name. Third-party transfers are not permitted.

Adding or changing a mapped account requires fresh proof, which is why payouts fail when a client funds the account from a different bank than the one on record.

Nomination names the person to whom securities in an account pass on the holder’s death. SEBI requires every account to either nominate or explicitly opt out through a signed declaration.

A nominee is a receiver, not necessarily the legal owner — succession law still determines final entitlement. Having one nonetheless makes transmission dramatically faster.

The DDPI is a narrow, standardised authorisation permitting a broker to do exactly two things: debit securities from the demat account to settle a sale, and pledge them to meet margin obligations.

SEBI introduced it to replace the broad power of attorney that brokers previously took. It is optional — without it, every sale must be authorised through eDIS instead.

A power of attorney used to give brokers wide operating authority over a client’s demat account. Its misuse in several broker defaults led SEBI to restrict the practice.

It has effectively been superseded by the DDPI, which is limited to settlement debits and margin pledges. A broker cannot require a POA as a condition of opening an account.

Brokers must settle the running account of every client at the prescribed interval — returning credit balances not required as margin to the mapped bank account.

Settlement runs on an exchange-notified schedule, which is why an unexpected credit sometimes appears in your bank account on a specific weekend. Retained amounts must be supported by an actual margin obligation.

The ledger records every debit and credit in the trading account: purchase and sale consideration, brokerage and statutory charges, payins, payouts and margin obligations.

A debit balance means the broker has funded a position on your behalf and delayed payment charges will usually apply. The ledger, not the app’s dashboard figure, is the authoritative statement of what you owe.

The client master report is a document issued by the depository participant listing the demat account’s holder details, DP ID and client ID, bank mapping, nominee and status.

It is what another intermediary asks for when shares are being transferred in, and it is the fastest way to confirm that the account details on an IPO or corporate action filing are correct.

A market order executes at once against the best available price in the order book. It prioritises certainty of execution over certainty of price.

In an illiquid stock that can be expensive: the order sweeps successive price levels until it is filled. For anything outside the most liquid names, a limit order is the safer instruction.

A limit order names the worst price you will accept. It sits in the order book until the market meets it, or until it expires unfilled.

You control the price but not whether the trade happens. Most disciplined execution, and virtually all trading in less liquid stocks, uses limit orders.

A stop-loss order carries two prices: a trigger and a limit. Nothing happens until the market touches the trigger, at which point the order enters the book at the limit price.

It caps losses on an open position. The risk is a gap through both prices in a fast market, leaving the order untriggered or unfilled.

An SL-M order fires as a market order once the trigger is hit. It will be filled, but at whatever price the book offers at that instant.

It is the safer choice when exiting matters more than the exit price. Exchanges restrict SL-M in some segments precisely because of the slippage it can cause.

A GTT is held by the broker rather than the exchange and remains valid for an extended period — commonly a year — placing the actual order only when the trigger price is reached.

It saves re-entering the same target or stop every morning. Because it lives with the broker, it is subject to the broker’s own availability and to margin being present when it fires.

A cover order bundles an entry order with a mandatory stop-loss in one instruction. Because the maximum loss is defined at entry, the broker can offer a lower margin requirement.

The stop-loss cannot be removed, only moved in your favour, and the position is squared off at the intraday cut-off.

A bracket order places three legs at once: the entry, a profit target and a stop-loss, with an optional trailing stop that moves the exit up as the trade goes your way.

Whichever exit triggers first cancels the other. Availability varies by broker, and some have withdrawn it under the current margin framework.

An after market order is accepted by the broker when the exchange is closed and pushed to the market at the start of the next session, typically into the pre-open or immediately after it.

It is convenient but blunt: an AMO market order executes into the opening print, which is often the least favourable price of the day.

An iceberg order discloses only part of its total quantity to the market at a time. As each tranche fills, the next is released automatically.

It limits the signalling effect of a large order in a thin book. Exchanges cap the number of tranches and the minimum disclosed quantity.

A day order stays in the book until it is filled or the session closes, whichever comes first. An immediate or cancel order fills whatever it can the moment it arrives and cancels the rest.

IOC is used where a partial fill at the right price is preferable to a resting order that signals intent to the market.

The order book lists every order placed in the session with its status — open, executed, cancelled or rejected. The trade book lists only executions, with the price and time of each fill.

A single order can produce several trades at different prices. The contract note issued that evening is built from the trade book.

Impact cost measures how far the price moves against you as an order consumes the available depth. It is the real transaction cost in illiquid stocks, and it dwarfs brokerage.

Exchanges publish impact cost as a liquidity measure, and it is one of the criteria used to decide index eligibility.

A delivery trade is settled by actual transfer: shares purchased are credited to your demat account, and shares sold must already be there.

Delivery attracts full margin at the time of purchase, no leverage beyond what a margin trading facility provides, and a higher rate of securities transaction tax than intraday.

An intraday position is opened and closed in the same session. Because nothing settles by delivery, brokers extend leverage against a smaller margin.

Any position still open at the broker’s cut-off is squared off automatically by the risk management system. Intraday trades attract a lower rate of securities transaction tax, charged only on the sell side.

A BTST trade sells shares bought the previous session, before the demat credit has landed. It is permitted, but it carries a specific risk: if the original purchase fails to deliver, your sale becomes a short delivery.

Under the T+1 cycle the exposure window is short, but the auction penalty if it goes wrong is not.

India settles equity trades on T+1 — securities and funds move on the working day following the trade. The transition completed in January 2023, making India one of the fastest settlement markets in the world.

An optional same-day settlement cycle has since been introduced for a limited set of stocks, running alongside the T+1 standard rather than replacing it.

Pay-in is the delivery of funds by buyers and securities by sellers to the clearing corporation on the settlement date. Pay-out is the corresponding distribution to the other side.

The clearing corporation stands between the two as the central counterparty, which is why a defaulting member does not leave the counterparty unpaid.

A contract note must be issued within 24 hours of trading. It lists each trade with its price, quantity, order and trade number, and itemises brokerage, STT, exchange charges, SEBI fees, stamp duty and GST.

It is the primary legal record of the transaction and the document to rely on for tax filing and for any dispute with the broker.

Short delivery occurs when a seller does not deliver the shares by the pay-in deadline — usually because a BTST purchase failed, the shares were pledged, or an authorisation was missed.

The clearing corporation buys the shares in the auction market and recovers the cost, plus a penalty, from the defaulting seller.

When delivery fails, the clearing corporation runs an auction to buy the shares from other members and deliver them to the buyer. The defaulting seller pays the auction price and the associated penalty.

Because the auction price can be well above the original sale price, the cost of a short delivery frequently exceeds any profit on the trade.

If the auction finds no seller, the obligation is closed out in cash at a penal reference price set by the framework rather than at the market price.

The penal basis is deliberately unattractive, since the point is to make settlement failure more expensive than fulfilling the obligation.

Turnover is the aggregate value of trades, and it drives most percentage-based charges on a contract note.

Note that the tax definition differs from the exchange one, particularly for derivatives, where turnover for audit purposes is computed on absolute profit and loss rather than on notional value.

Margin is the good-faith deposit that backs an open position. It is calculated by the exchange for derivatives and by a value-at-risk model for cash market trades, and it must be available before the order is placed.

Margin can be met in cash or by pledging approved securities, subject to a haircut and to the minimum cash component requirement.

SPAN margin is computed by the exchange’s portfolio risk model, which stresses the position across price and volatility scenarios and takes the worst-case loss. Exposure margin is an additional flat buffer on top.

Together they form the initial margin for a derivatives position. Hedged positions attract far less than the sum of their legs, because SPAN nets offsetting risk.

Cash market margin combines a value at risk charge, derived from the stock’s own volatility, with an extreme loss margin covering moves outside the VaR estimate.

Liquid large caps attract around 20 percent; volatile small caps can require far more. This is the figure that determines how much must be available before a delivery buy order is accepted.

Under the current framework, the entire applicable margin must be collected before the trade. Brokers cannot extend intraday leverage beyond the prescribed margin and then collect later.

The rule ended the era of very high intraday leverage in Indian broking, and it is why intraday buying power now looks much closer to delivery buying power.

Clearing corporations take several random snapshots during the session and compute the highest margin obligation across them. Compliance is judged against that peak, not against the end-of-day position.

The design prevents a trader from running a large position through the day and unwinding it before the close to avoid the requirement.

A shortfall penalty is charged by the clearing corporation when margin is short at any snapshot, on a graded scale that rises with the size and frequency of the shortfall.

The broker pays it and passes it to the client’s ledger. Repeated shortfalls attract a higher rate, which is why a series of small breaches can cost more than one large one.

Margin trading facility lets a client take delivery of shares by paying part of the value, with the broker funding the rest against interest. The purchased shares are pledged as collateral.

Only brokers authorised for MTF may offer it, only approved securities are eligible, and positions can be liquidated if the collateral value falls. It is leverage on delivery, and the interest cost compounds daily.

To use holdings as margin, the client pledges them in favour of the broker, confirming through an OTP sent by the depository. The broker then re-pledges them to the clearing corporation.

Crucially, the shares never leave the client’s demat account. The framework was introduced after brokers misused client securities held under a power of attorney.

A haircut reduces the collateral value of pledged securities to cover the risk that their price falls before they can be sold. Pledging a portfolio worth ten lakh rupees with a 20 percent haircut yields eight lakh of margin.

Haircuts follow the stock’s VaR and ELM, so volatile stocks provide proportionately less collateral value.

For derivatives, at least 50 percent of the total margin must be met in cash or cash equivalents; the balance may come from pledged securities.

Exceeding the securities portion attracts a funding charge from the broker, since it must fund the cash leg itself.

Open derivatives positions are marked to market at the end of each day. Losses are debited and gains credited, so exposure never accumulates unsettled.

An MTM debit that cannot be met from the ledger creates a margin shortfall, which is the usual precursor to a risk-management square-off.

A broker’s risk management system closes positions automatically when the margin available falls below the requirement, or when an intraday position reaches the square-off deadline.

It acts at the market price, not at a price of your choosing, and the broker usually charges a fee for each auto square-off. Closing your own positions before the deadline is always cheaper.

Brokerage is the only charge on a contract note that the broker keeps. Traditional firms charge a percentage of turnover; discount brokers charge a flat fee per executed order, often with delivery free.

It is subject to a regulatory maximum, and GST applies on top of it.

Securities transaction tax is levied on the transaction value. Equity delivery is taxed on both the buy and the sell side; intraday equity is taxed on the sell side only, at a lower rate.

Derivatives attract their own rates on the sell side, on the premium for options and on the notional value for futures, both of which were raised with effect from October 2024. STT is not recoverable and forms part of the cost of acquisition for accounting purposes.

Each exchange levies a transaction charge on turnover, differing by segment and by exchange. It is billed to the broker and passed through on the contract note.

SEBI requires these to be charged to clients at the actual rate levied, ending the earlier practice of billing at slab rates and retaining the difference.

The SEBI turnover fee is a flat levy per crore of turnover that funds the regulator. It is negligible on a single trade but visible on an active trader’s monthly statement.

It appears as a separate line on the contract note, and GST applies to it.

GST applies to brokerage, exchange transaction charges and SEBI turnover fees. It does not apply to STT or stamp duty, which are themselves taxes.

Traders registered under GST for other business cannot generally claim input credit on securities trading, since dealing in securities is outside the scope of supply.

Stamp duty is charged on the buy side only, at rates that differ by segment — highest for delivery, lower for intraday and derivatives.

Since 2020 it has been collected centrally through the clearing corporations at a uniform national rate and distributed to the states, replacing the earlier patchwork of state-wise rates.

DP charges are levied on the sell side of a delivery trade, as a flat amount per scrip per day regardless of quantity. Selling ten shares and ten thousand shares of the same stock costs the same.

The charge does not appear on the contract note — it is debited separately to the ledger, which is why the two rarely reconcile exactly.

Depository participants charge an annual maintenance charge for the demat account. Basic Services Demat Accounts, intended for small investors, carry no charge below a prescribed holding value and a reduced charge above it.

An unused demat account continues to accrue AMC, and unpaid AMC is a common reason for accounts being marked inactive.

The investor protection fund trust charge is a small per-crore levy that funds compensation for investors when a trading member defaults.

The fund pays claims up to a prescribed ceiling per investor, subject to the exchange’s verification process.

When a client’s ledger runs into debit — an unfunded purchase, an MTM loss or a margin shortfall — the broker charges delayed payment charges on the outstanding amount, typically at a monthly percentage rate.

The rate is disclosed in the tariff sheet, and it is usually well above any comparable cost of funds.

India has two depositories: NSDL and CDSL. Between them they hold every dematerialised security and maintain the definitive record of who owns what.

Investors do not deal with them directly. Access is through a depository participant, and the depositories send holding statements and transaction alerts independently of the broker — which is a useful cross-check.

A depository participant is the intermediary — usually a broker or a bank — through which a demat account is opened and operated. It is the depository’s point of contact with the investor.

The DP ID identifies the participant and the client ID identifies the account within it. Together they form the sixteen-digit beneficiary account number.

An ISIN uniquely identifies a security. Every equity share, debenture series and mutual fund unit has one, and it is the key used for settlement and corporate actions.

Two lines of the same company can have different ISINs — partly paid shares and rights entitlements, for instance, trade under their own codes.

eDIS authorises the debit of shares for a specific sale using a depository-issued TPIN and an OTP. It replaces the old paper delivery instruction slip.

It must be completed for each sale, which is inconvenient for active traders — the reason most opt for a DDPI instead. Failing to authorise in time results in a short delivery.

The depository issues a holding statement directly to the investor, and a consolidated account statement covering demat holdings and mutual fund units across all accounts against the same PAN.

Because it comes from the depository rather than the broker, it is the independent record to reconcile against the broker’s portfolio screen.

Dematerialisation converts physical certificates into electronic form. The investor submits the certificates with a request form to the DP, which forwards them to the registrar for verification and destruction before the credit is made.

Transfer of physical shares is no longer permitted, so demat conversion is now the only route to selling an inherited or long-held certificate.

Transmission is the operation of law transfer of securities on death, as distinct from a voluntary transfer. Where a nominee is registered, it needs only the death certificate and the nominee’s KYC.

Without a nomination it requires succession documents, and the process becomes materially longer and more expensive.

A circuit limit caps how far a price may move in a session — commonly 2, 5, 10 or 20 percent for individual stocks. Stocks with derivatives contracts have wider dynamic bands instead.

When a stock locks at its upper or lower circuit, orders queue on one side and trading effectively stops. Index-level circuit breakers halt the whole market at defined thresholds.

The ASM framework flags stocks showing unusual price or volume behaviour and applies restrictions: higher margins, narrower price bands and sometimes trade-for-trade settlement.

Inclusion is based on objective criteria, not on any finding of wrongdoing. It is a warning that the stock is behaving abnormally, and it makes positions considerably more expensive to hold.

GSM targets securities whose valuation appears unsupported by fundamentals. It applies in escalating stages, from trade-for-trade settlement and additional margin up to periodic call auctions and restrictions on upward price movement.

At the higher stages the stock trades only in a handful of auctions, which makes exiting a position extremely difficult.

In the trade-for-trade segment, intraday squaring off is not permitted: each purchase must be paid for and delivered, and each sale must be backed by shares held.

Stocks are placed here under surveillance measures, and newly listed SME shares often start here. Buying such a stock intraday by mistake results in a short delivery.

Liquidity is depth in the order book. A liquid stock absorbs a large order with little price movement; an illiquid one moves several percent on a modest trade.

It is the risk most often underestimated in small caps: entering a position is easy, and exiting one during a fall may not be possible at any sensible price.

An exchange may suspend trading in a security for persistent non-compliance with listing obligations, ahead of a material announcement, or on surveillance grounds.

Holdings remain in the demat account but cannot be sold until trading resumes. Prolonged suspension can end in compulsory delisting, which leaves holders with an exit offer at best.

A dividend is a distribution of profit, declared per share and paid into the bank account linked to the demat account.

Since 2020 dividends are taxable in the shareholder’s hands at slab rates, with TDS deducted by the company above a threshold. The share price typically falls by roughly the dividend amount on the ex-date.

The ex-date is the day from which a buyer no longer receives the announced benefit. To be entitled, you must buy before the ex-date so that the trade settles by the record date.

Under T+1 settlement the ex-date and record date generally coincide, so buying on the ex-date itself is too late.

The record date is when the company reads its register of members to decide who receives a dividend, bonus, split or rights entitlement.

Shares must be in the demat account at the end of that day. What matters is settlement, not the trade date.

A bonus issue capitalises reserves into new shares issued free to existing holders — a 1:1 bonus doubles your share count.

The price adjusts proportionately, so the value of the holding is unchanged on the day. It improves liquidity by lowering the per-share price and is often read as a signal of confidence.

A stock split divides each share into several by reducing the face value — a 10-rupee share split into five 2-rupee shares gives five shares for every one held.

Unlike a bonus, no reserves are capitalised; only the denomination changes. The purpose is to bring the market price into a more accessible range.

In a rights issue, eligible shareholders receive rights entitlements in their demat account under a separate ISIN. These can be exercised by applying and paying, sold on the exchange during the trading window, or allowed to lapse.

Letting them lapse forfeits their value entirely, which is a surprisingly common and wholly avoidable loss.

In a merger, shares of the merging company are replaced by shares of the surviving one in a defined swap ratio. In a demerger, shareholders receive shares of the newly separated entity in addition to what they hold.

Both run through a scheme of arrangement approved by shareholders, creditors and the tribunal, and both are executed in demat on a specified record date.

A futures contract commits both parties to a transaction at a fixed price on the expiry date. It is standardised by the exchange in lot size and expiry, and margined daily through mark to market.

Futures give leveraged exposure in both directions, with losses that are not capped by the amount paid up front.

An option gives its buyer a right without an obligation: a call to buy, a put to sell, at the strike price on or before expiry. The seller takes the matching obligation in exchange for the premium.

Buyers risk only the premium paid. Sellers face potentially large losses and must maintain margin, which is why option writing is treated as a professional activity rather than a retail one.

The strike price is the level at which the option holder may transact. Exchanges list a ladder of strikes around the current price at fixed intervals.

Strikes that would be profitable to exercise now are in the money; the rest are out of the money and carry only time value.

The premium is what changes hands when an option is traded. It combines intrinsic value — how far the option is in the money — with time value, which reflects the remaining life and the expected volatility.

Time value decays as expiry approaches, and that decay accelerates in the final days. It is the reason most far out of the money options bought close to expiry expire worthless.

Every derivatives contract has an expiry on which it ceases to exist and is settled. Index contracts settle in cash against the closing value; single stock contracts settle by physical delivery.

Positions left open into expiry are settled automatically, which can result in a substantial and unintended delivery obligation.

All single-stock futures and options in India settle by physical delivery. An in-the-money long call at expiry means taking delivery of the full lot and paying for it; a short position means delivering the shares.

The delivery margin ramps up over the final days of the expiry week. Traders who overlook this discover a delivery obligation many times the size of their margin.

Open interest counts contracts that remain open. It rises when a new position is created on both sides and falls when positions are closed.

Read alongside price, it indicates whether a move is being backed by new positions or driven by existing ones being unwound. It is a positioning measure, not a direction signal.

Derivatives trade in lots rather than single units. The exchange sets the lot size so that one contract meets the prescribed minimum notional value, and revises it periodically as prices move.

Lot size determines the smallest possible position, and therefore the minimum capital needed to trade a given contract.

A stock broker is registered with SEBI and admitted as a trading member of one or more exchanges. It accepts client orders, routes them to the exchange, issues contract notes and handles settlement obligations.

Brokers must segregate client funds and securities from their own, report client balances to the exchanges daily, and can only use client collateral for that client’s obligations.

An authorised person is appointed by a trading member to provide access to clients on its behalf, and is registered with the exchange. The sub-broker category was merged into this one.

The AP cannot accept funds or securities in its own name — money and shares must flow directly between the client and the broker. Responsibility for the AP’s conduct rests with the appointing broker.

A stock exchange operates the order matching platform, publishes prices and trade data, sets circuit limits and surveillance measures, and regulates its trading members as a first-level regulator.

India’s principal equity exchanges are the NSE and the BSE, both supervised by SEBI.

A clearing corporation interposes itself between buyer and seller, becoming the counterparty to both. It computes obligations, collects margin, runs the settlement cycle and maintains a settlement guarantee fund.

Because it guarantees settlement, a member’s default does not leave the other side unpaid. NSE Clearing and Indian Clearing Corporation perform this role for the two main exchanges.

A clearing member holds settlement rights with the clearing corporation. Some brokers clear their own trades; smaller ones settle through a professional clearing member.

The clearing member is responsible for margin and settlement obligations, which is why its financial standing matters to the clients behind it.

Brokers are registered under the SEBI (Stock Brokers) Regulations and supervised jointly by SEBI and the exchanges through inspections, daily reporting of client funds and securities, and enhanced supervision requirements.

The framework was tightened substantially after several broker defaults, particularly around the upstreaming of client funds and the prohibition on using client securities as the broker’s own collateral.

SCORES is SEBI’s portal for lodging complaints against registered intermediaries, with defined timelines for response and escalation.

If the complaint is not resolved, it can be taken to the securities market online dispute resolution platform for conciliation and, failing that, arbitration. The exchange investor grievance mechanism and the investor protection fund sit alongside these routes.