The stock market is a hot topic at every dinner party these days. But, before you jump on to the bandwagon, get some basics right.

People like you and me can?t directly buy and sell shares on the bourses. Only a broker registered with the stock market regulator, Securities and Exchange Board of India (Sebi), can do it for us and he takes a percentage of the transaction value as brokerage fee. So, you have to find a stock broker first.

Every stock exchange has a list of its member brokers. Not every broker or brokerage firm entertains retail investors, but most of them do.

A broker should be chosen according to your preferred mode of transaction ? would you like to go to your broker?s office every time you want to place an order or do you prefer to transact shares online without interacting with the broker in person?

Online boon

Online trading has made life easier. Investors cannot only buy and sell shares with a click of the mouse from their home computers, most of these online trading facilities also offer stock research reports, industry and company analyses and so on.

Low brokerage

Online trading is also beneficial for retail investors because here the brokerage fees are lower than offline trading. In offline trading, brokers charge 1 per cent, or a minimum of Rs 50 per transaction, as brokerage, while it varies between 0.5 per cent and 0.75 per cent in online trading.

Before selecting a particular broker, shop for the lowest brokerage fee. Most of these firms display their charges on their websites. Icicidirect.com charges a fee of 0.75 per cent per transaction, India Infoline and Sharekhan charge 0.5 per cent, while Motilal Oswal takes 0.4 per cent. They also charge an initial fee within a range of Rs 400 and Rs 750 for opening an online trading account. Besides, you will have to pay a 10.2 per cent service tax (on the brokerage) and a security transaction tax of 0.1 per cent on every transaction.

An online trading account can be browser-based or software-based. The account opening cost could be three to four times higher if the software-based option is chosen. These accounts come with value-added features and are beneficial for those who are into day or margin trading. Day trading is a risky business and one is required to put a margin money with the broker to carry it out. Therefore, such an activity is not suitable for common retail investors.

Demat first

But before you plunge into stock trading, you should open a demat account for shares. The Bombay Stock Exchange and the National Stock Exchange have made trading in most stocks in compulsory dematerialised form. If you want to sell these shares in physical form, you can sell them only as ?odd-lots? which will fetch a much lower price than quoted on the exchanges.

A demat account can be opened with a depository participant upon paying an annual maintenance fee of Rs 250-750. Besides, they also charge Rs 30-50 for every debit entry (sell) of shares in the demat account.

All public and private sector banks offer the demat facility and they charge a lower fee if the demat account holder has a savings or current account with the bank concerned. Many brokerage firms also offer demat facilities. A list of these broker-cum- depository participants is available on the websites of National Securities Depository (www.nsdl.co.in) and Central Depository Services (www.cdslindia.com). These are the two central depositories in the country.

Reference point

While banks themselves don?t deal in share purchase or sale, often they have subsidiaries carrying out stock broking or have arrangements with brokerage firms. A common investor should preferably open a demat account that is linked with a savings account in a bank and register with the associated brokerage firm for a seamless transfer of shares and funds.

The inside story

Investors should also understand the settlement processes of exchanges.

BSE and NSE follow a T+2 cycle, which means that the shares or funds should be paid to the stock exchanges on the second day after the trading is done.

Similarly, stock exchanges make the payout on the second day following the day of trading. This means you must deliver their shares (if sold) or make payment (if bought) to your broker on the next day after he confirms the trading.

Make sure that you get the share-trading confirmation from your broker through a contract note. See that this is duly signed by the broker and bear the transaction details along with the broker?s registration number.