Who Are the Retail Participants?

Retail Investors comprise individual investors who buy and sell securities for their account and not for another company or association.

HNIs or High Net-worth Individuals and UHNIs (Ultra High net-worth individuals) are individual investors who invest vast sums of money in the market.

Reserve Bank of India has approved general permission for Non-Resident Indians (NRIs), Persons of Indian origin (PIOs), and Qualified Foreign Investors (QFIs) to undertake direct investments in Indian companies.

A brief on Trading, Hedging, Arbitrage, Pledging of Shares

Trading:

·       Trading or speculating is purchasing or selling an asset in anticipation of a profit from changes in the price of that asset over a short period.

·        Traders or speculators look to profit from acting on information that changes prices.

·       Their actions add to liquidity in the market. Traders or Speculators characteristically leverage their trading activity with borrowed funds, which magnify their gains and losses.

Hedging:

·       Hedging is an act of taking a position in financial transactions to compensate for likely losses that another position may acquire. A hedge can be constructed from many kinds of financial instruments, together with insurance, forward/futures contracts, swaps, options, etc. A hedged position reduces loss and gains, as appreciation in one position is squared off by depreciation in the other position and vice versa.

·         Arbitrage - Arbitrage is the concurrent purchase and sale of an asset in an attempt to profit from a difference in its prices in two different markets.

·       Buying stock in the spot market and simultaneously selling that in the futures market to profit from the price differential illustrates an arbitrage transaction. Avital point to understand is that arbitrage opportunities may exist only for a short period or none at all in an efficient market.

·       The subsistence of an arbitrage opportunity will increase buying in the lower-priced market, leading to a rise in prices, and increased selling in the higher-priced market, leading to a fall in prices, ultimately resulting in closing the gap and abolition of the arbitrage occasion between two needs.

Pledging Of Shares:

·       Pledge is an act of taking a loan against securities by the investor. The investor is known as ‘pledger,’ and the entity that is giving the loan against the securities is known as ‘pledgee.’

·       Securities held in a depository account can be pledged/ hypothecated to benefit a loan/credit facility.

·        Dematerialized securities remained in the pledger’s Demat account when dematerialized securities were pledged, but they were blocked so that they could not be used for any other transaction. Pledged securities can be unpledged when the obligations under the pledge are content. In case of non-payment, the pledgee can appeal to the pledge.