Ways Trade Execution Can Improve Your Capital Market Business!October 15, 2019
What exactly is Trade?
Trade is the exchange of items between two or more parties backed up by purchasing power. In a layman’s language, buying and selling of products and services are known as Trade.
What are Capital Markets?
Capital market is the kind of financial market where securities such as long-term debt, equities, etc. are traded frequently. This is a volatile market as the value of these securities and the interests and dividend rates involved with them keep fluctuating. The capital market is further broken down into two categories: Primary Market & Secondary Market. The primary market is the capital market where new securities are bought and sold and the Secondary market is the one where the already issued securities are exchanged by various investors and companies.
Trade Execution and the Capital Market
Whenever there is an exchange, trade comes into the picture, even in case of financial instruments. Financial instruments are heavily traded all around the globe every second. And with such exchange of securities, the trade aspect has to be clearly defined and should not be eclipsed by the volume of transactions. The capital market runs on the game of exchange. Such exchanges are facilitated by smooth trade execution, Asset Management Allocation, and well-versed Capital Market courses.
The trade life cycle has to be optimized and every step has to deliver some value to make the process smooth and glitch-free. Mentioned below are the stages of the Trade Life cycle and how their execution leads to improvement in the capital market business.
- Order Initiation
The order is initiated when the stocks of various companies are made to float in the market. Such a process can be called as “Security Existence Awareness”. Then an individual buyer or a company shows its intention to buy particular security with the help of their registered stock brokers. The brokers perform the buying and selling function for their respective clients in exchange for a small fee. After the order is placed, the brokers process the transaction, delivers the security or collect the money and transfer the benefit to his client.
- Order Processing and Managing Potential Risks
A capital market is a place with fluctuating value. And with fluctuation, risks dawn in. To process the order, the broker must have a clear picture of the funds residing in his client’s account and also of the securities the client is interested in. If both the scenarios fall in line, the broker generates the receipt and processes the orders. If any default on the part of the client, the broker will have to keep a window up for such loopholes and manage the associated risks carefully. Also, the broker has to recover the additional charges from their clients efficiently.
- Order Matching and Trade conversion
On the verification of what is required by the client, the particular securities are sent to exchange for verification of various details and allotment of the respective securities. The brokers charge a brokerage for executing the security trade function effectively and efficiently. The receipt of the order confirmation is then sent to the client and the details of the client are recorded by the broker for the allotment of a unique customer ID.
- Trade Confirmation
An agency that is commonly known as the custodian then intervenes in the settlement of any security deal. The custodian receives the details of the order from the exchange. This includes details like the type, price of the security, etc. This is done to make the custodian aware of an upcoming securities exchange. It is the job of a custodian to validate the details of the transaction and then show a green flag to the broker. This complicated process can be made much easier by proper capital market training.
- Trade Settlement and Clearance
The trade is then settled after 2 days of a valid transaction. This is commonly known as a T+2 settlement. The clearance provider then informs the restrictions of the particular transactions which is followed by the settlement of balances. The securities are then allocated to the client in his DMAT account and the share value is credited to the companies raising capital. After completion of such a transaction, it is recorded by the Exchange offices.
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