Class 12 Finance Chapter 12 Methods of Trading In A Stock Exchange

Class 12 Finance Chapter 12 Methods of Trading In A Stock Exchange Solutions English Medium As Per AHSEC New Syllabus to each chapter is provided in the list so that you can easily browse through different chapters ASSEB Class 12 Finance Chapter 12 Methods of Trading In A Stock Exchange Solutions in English and select need one. AHSEC Class 12 Finance Chapter 12 Methods of Trading In A Stock Exchange Solutions Download PDF. HS 2nd Year Finance Textual Solutions.

Class 12 Finance Chapter 12 Methods of Trading In A Stock Exchange

Also, you can read the NCERT book online in these sections Solutions by Expert Teachers as per Central Board of Secondary Education (CBSE) Book guidelines. ASSEB Class 12 Banking Question Answer are part of All Subject Solutions. Here we have given HS 2nd Year Finance Textual Solutions English Medium for All Chapters, You can practice these here.

Methods of Trading In A Stock Exchange

Chapter: 12

Unit – 3 Capital Market

A. Very Short Answer Questions: 

1. Who is an investor?

Ans: An investor is a person or institution who invests money in securities to earn returns.

2. Write the full form of DP.

Ans: Depository Participant.

3. What is a depository?

 Ans: A depository is an organization that holds securities in electronic (Demat) form.

4. What is hedge?

Ans: A hedge is a strategy used to reduce investment risk.

5. What is LARGECAP?

Ans: Large-cap refers to companies with a large market capitalization.

6. What is MIDCAP?

Ans: Mid-cap refers to companies with a medium market capitalization.

7. What is SMALLCAP?

Ans: Small-cap refers to companies with a small market capitalization.

B. Short Answer Questions:

1. What is demat?

Ans: Demat (Dematerialization) is the process of converting physical share certificates into electronic form. A Demat account is used to hold securities electronically.

2. State any two methods of trading stock.

Ans: Any two methods of stock trading are:

(i) Offline Trading.

(ii) Online Trading.

3. What is Offline trading of stock?

Ans: Offline trading is the buying and selling of shares through a stockbroker by visiting the broker’s office or placing orders over the telephone.

4. What is Day trading?

Ans: Day trading is the buying and selling of securities on the same trading day, with all positions closed before the market closes.

5. What is Swing trading?

Ans: Swing trading is a trading strategy in which securities are held for a few days or weeks to earn profit from short-term price movements.

6. What is Position trading?

Ans: Position trading involves holding stocks for weeks or months and making trades based on fundamental analysis and market trends.

7. What is Options trading?

Ans: Options trading involves buying and selling options contracts, which give traders the right to buy or sell a stock at a specific price within a specific time period.

8. What is Online trading of stock?

Ans: Online stock trading is a method of buying and selling stocks through an online trading platform provided by brokers. It offers real-time stock quotes, charts, news, and quick trade execution.

9. State two benefits of online trading of securities.

Ans: (i) Convenience: Investors can trade anytime and from anywhere with an internet connection.

(ii) Lower Costs: Online trading platforms usually charge lower brokerage fees and commissions.

10. Write any two steps in the trading and settlement procedures.

Ans: (i) Selection of Broker: The investor selects a registered broker and opens a trading account.

(ii) Opening a Demat Account: The investor opens a demat account with a depository participant to hold securities electronically.

11. Give the meaning of Stock indices.

Ans: A stock index is a measure of the performance of a selected group of stocks representing the overall market. It reflects market trends and investor sentiment.

12. Write two global stock market indices.

Ans: (i) Dow Jones Industrial Average (DJIA).

(ii) NASDAQ Composite Index.

13. Write two most important stock market indices in Indian market.

Ans: (i) BSE Sensex.

(ii) Nifty 50 (NSE Nifty).

C. Long Answer Questions (Type-I):

1. Write any five methods of trading stock.

Ans: The five methods of trading stock are:

(i) Offline Stock Trading: Buying or selling stocks by contacting a broker directly.

(ii) Day Trading: Buying and selling stocks on the same day to earn profit from short-term price changes.

(iii) Swing Trading: Holding stocks for a few days or weeks based on market trends and technical analysis.

(iv) Position Trading: Holding stocks for weeks or months based on fundamental analysis and long-term market trends.

(v) Options Trading: Buying and selling options contracts that give the right to buy or sell stocks at a fixed price within a specified period.

2. What are the needs for stock indices?

Ans: The needs for stock indices are:

(i) Sorting: They classify companies based on size, sector, and other characteristics.

(ii) Representation: They represent the performance of the overall market or a particular sector.

(iii) Comparison: They help investors compare the performance of stocks with the market.

(iv) Reflection: They reflect investor sentiment and market trends.

(v) Passive Investment: They help investors invest in portfolios that track market indices.

3. Write five benefits of online trading.

Ans: Five benefits of online trading are:

(i) Convenience: Traders can buy and sell securities anytime and from anywhere.

(ii) Lower Costs: Online trading has lower brokerage fees and commissions.

(iii) Real-Time Information: It provides live stock prices, charts, and market news.

(iv) Efficiency of Operation: It reduces time, cost, and chances of errors.

(v) Increased Control: Traders can execute trades quickly without depending on a broker

D. Long Answer Questions(Type-II): 

1. Explain the steps in the trading and settlement procedure.

Ans: The following are the steps involved in the trading and settlement procedure:

(i) Selection of Broker: The investor selects a registered broker, enters into an agreement, and opens a trading account.

(ii) Opening a Demat Account: The investor opens a demat account with a depository participant (DP) to hold securities electronically and also opens a bank account for cash transactions.

(iii) Placing the Order: The investor places an order with the broker to buy or sell shares at the desired price.

(iv) Matching the Share and Best Price: The broker matches the order with the best available market price through the stock exchange.

(v) Executing the Order: Once the order is matched, it is executed electronically and the broker informs the investor.

(vi) Issue of Contract Note: Within 24 hours of the trade, the broker issues a contract note containing details of the transaction.

(vii) Delivery of Shares and Making Payment: The investor delivers the shares sold or makes payment for the shares purchased on the pay-in day.

(viii) Settlement Cycle: The transaction is settled on a T+2 basis, where settlement takes place within two working days after the trade date.

(ix) Pay-out Day: On the T+2 day, the stock exchange delivers shares or payment to the respective broker.

(x) Delivery of Shares: Finally, the broker transfers the purchased shares directly to the investor’s demat account.

2. What are Stock Indices? Explain the need for Indices.

Ans: A Stock Index is a measure of the performance of a selected group of stocks that represents the overall market or a particular sector. It acts as a barometer of market performance and reflects market trends and investor sentiment.

Need for Indices:

(i) Sorting: Indices classify companies according to their size, sector, or industry, making stock selection easier.

(ii) Representation: Indices represent the performance of the overall market or a specific segment of the market.

(iii) Comparison: Indices help investors compare the performance of individual stocks or portfolios with the market benchmark.

(iv) Reflection: Indices reflect investor sentiment and overall market movements.

(v) Passive Investment: Investors can build portfolios that closely follow market indices, reducing research and stock selection efforts.

3. What is Online Trading of Stock? Explain the benefits of online trading of stock.

Ans: Online stock trading is the process of buying and selling stocks through an online trading platform provided by brokers. It enables investors to access real-time stock prices, charts, news, and execute trades electronically from anywhere with an internet connection.

Benefits of Online Trading:

(i) Convenience: Investors can trade anytime and from anywhere with an internet connection.

(ii) Lower Costs: Online trading platforms charge lower brokerage fees and commissions than traditional brokers.

(iii) Real-Time Information: Investors get live stock prices, charts, market news, and other trading information.

(iv) Efficiency of Information: Information is transmitted quickly, helping in efficient price discovery.

(v) Efficiency of Operation: Online trading reduces time, cost, and the chances of errors in trading.

(vi) Liquidity of the Market: It allows more investors to participate in the market, improving liquidity.

(vii) Increased Control: Investors can execute trades quickly and independently without relying on a broker.

(viii) Variety of Investment Options: Investors can trade in stocks, bonds, mutual funds, ETFs, and options through a single online platform.