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Trade Life Cycle

The trade life cycle consists of three main phases: pre-trade, trade execution, and post-trade. During pre-trade, buyers and sellers place orders through brokers, which are then matched in the stock exchange. After a trade is executed, details are sent to a clearing house for settlement, which typically takes two days (T+2) to complete the transfer of securities and funds between buyers and sellers.

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Manohar Vejandla
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15 views2 pages

Trade Life Cycle

The trade life cycle consists of three main phases: pre-trade, trade execution, and post-trade. During pre-trade, buyers and sellers place orders through brokers, which are then matched in the stock exchange. After a trade is executed, details are sent to a clearing house for settlement, which typically takes two days (T+2) to complete the transfer of securities and funds between buyers and sellers.

Uploaded by

Manohar Vejandla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Trade Life Cycle

Pre Trade:

Place the order by the buyer to buy the securities or seller to sell the security.
Example: Buy 100 shares of reliance at 2200 per share.

Order will reach to stock broker like Zerodha, who will verify the order and place to
stock exchange systems. Stock exchanges like BSE or NSE will receive buy and sell
orders and display the order to all participants. Example, Tata Motors.

Buy Buy Sell Sell

Quantity Price Quantity Price

10 439.5 440.5

100 439.4 441

1 439 442

5 438 443

6 435 443.5

Stock exchange will display the top 5 buy orders (highest price quoted amongst the
buyers) and top 5 sell orders (lowest price out of all sellers) in the order book.

Once the price of the buyers and seller matches, the trade will happen.
Example: In the above case, buyer want to buy at 439.5 but the sell price is at 440.5.
So the buyer can increase the price to 440.5 or seller can reduce to 439.5, trade will
happen. Assuming both agreed at 440 (buyer increased to 440 and seller decreased
to 440), trade will happen at 440 per share.
Post Trade:

Once trade happened at stock exchange, these stock exchanges will send all the
trade details to clearing house.

Example: 1 lakh trades in reliance and 2 lakh trades in Infosys happened today, all
their buyers and sellers details will be sent to NSE Clearing Ltd (Clearing House) by
tomorrow morning.
Clearing Corporation takes responsibility to settle all the trades, so buyer will get
securities and seller will get money into their accounts. For this, clearing house will
reach out to all respective parties for confirmation, so settlement (clearing and

Trade Life Cycle 1


settlement process) is error free. Clearing fee will send all trade details to stock
brokers to confirm their net obligation.

Example: Zerodha clients purchased 1 lakh shares and sold 50k shares. Net they
have to pay for 50k shares.

Once the stock brokers confirm the details, clearing house will send the instructions
to them to settle the net obligation.

CC (Corporate Clearance) will instruct the clearing banks to arrange the money.
CC will instruct the depositories to arrange for the securities (NSDL or CDSL) will
have all the securities ownership details.

Pay-in-of-money: Clearing bank send money to clearing corporation.

Pay-in-of-securities: Depositories will send the securities to CC.

Pay-out-of-securities: CC instruct depositories to transfer securities to buyers


account.

Pay-out-of-money: CC will instruct clearing bank to transfer money to sellers.

The total process of clearing and settlement takes 2 days. If you buy the shares on
Monday, you will receive the shares by Wednesday (T+2) settlement; trade day + 2
days.

Trade Life Cycle 2

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