How the Indian market is structured
Before managing risk you need to know who runs what. Mistakes in market structure, such as confusing a stop-loss with a guarantee, are some of the most expensive.
The venues
| Venue | What trades there |
|---|---|
| NSE | Equities, index and stock derivatives, currency derivatives, debt. |
| BSE | Equities (the oldest exchange in Asia), derivatives, SME and debt segments. |
| MCX | Commodity derivatives, mainly energy and metals (for example crude oil, gold, silver, natural gas, base metals). |
| NCDEX | Commodity derivatives, mainly agricultural. |
The rule-makers
- SEBI regulates the securities and commodity derivatives markets, exchanges, brokers, advisers and mutual funds. Its rules cover margins, disclosures, who may give investment advice and how brokers must treat clients.
- RBI regulates banks, money and government-securities markets, and foreign-exchange rules under FEMA. Trading currency on offshore or unauthorised platforms is a known compliance risk; RBI publishes an alert list of unauthorised forex platforms.
- Clearing corporations guarantee the settlement of trades and collect margins, which is why you pay margin even when you are only a small participant.
How equity trades settle
Cash-market trades on NSE and BSE settle on a T+1 basis: shares and funds move one working day after the trade. Shares you buy for delivery arrive in your demat account; shares you sell must already be there. Intraday positions that are squared off the same day are not delivered.
Why this matters for risk
- Price bands and circuits. Many stocks have daily price bands. If a stock is stuck at its lower band you may be unable to exit at any price that day.
- Surveillance measures. Exchanges place stocks in frameworks that raise margins or limit trading when price and volume look unusual. Check the exchange notices for any stock you hold.
- Stop-losses are orders, not guarantees. A stop turns into a market or limit order when triggered. It can fill far from the trigger on a gap.
- Derivatives are margined and marked to market daily. Losses are settled in cash each day, not at the end.
Verify who you deal with
Only SEBI-registered entities may give investment advice for a fee, and brokers must be registered. Check any adviser, analyst or broker in SEBI's intermediary list before paying anyone. Be wary of guaranteed returns, "sure-shot" tips and private groups that ask for money.
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