Who are the Retail Participants?
Retail Investors comprise individual investors who buy and sell securities for their personal 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 huge sums of money in the market.
Reserve Bank of India has approved general permission to Non Resident Indians (NRIs), Person of Indian origin (PIOs) and Qualified Foreign Investors (QFIs) for undertaking direct investments in Indian companies.
A brief on Trading, Hedging, Arbitrage, Pledging of Shares
Trading or speculating is an act of purchase or sale of an asset in the anticipation of aprofit from changes in the price of that asset over a short period of time.
Traders or speculators look to profit from acting on information which bring about changes in prices.
Their actions add to liquidity in the market. Traders or Speculators characteristically leverage their trading activity with borrowed funds, which magnify their gains as well as losses.
Hedging is an act of taking position in the financial transactions to compensatelikelylosses that may be acquired by another position. A hedge can be constructed from many kinds of financial instruments, together withinsurance, forward/futures contracts, swaps, options etc. A hedged position reduces loss as well as gains, as appreciation in one position is squared-off by depreciation in the other position and vice versa.
Arbitrage - Arbitrage is concurrent purchase and sale of an asset in an attempt to profit fromdifference in their prices in two different markets.
Buying a stock in the spot market and simultaneously selling that in the futures market to profit from the price differential is an illustration of an arbitrage transaction. Avital point to understand is that in an efficient market, arbitrage opportunities may exist only for short period or none at all.
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 markets.
Pledging of shares:
Pledge is an act of taking loan against securities by the investor. Theinvestor is known as ‘pledgor’ and the entity who is giving the loan against the securities is known as ‘pledgee’.
Securities held in a depository account can be pledged/ hypothecated to benefit of loan/credit facility.
Dematerialized securities remain in the pledgor’sdemat account, when dematerialized securities were pledged, but they are blocked so that they cannot be used for any other transaction.Pledged securities can be unpledged, when the obligations under pledge are content. In case of non-payment, the pledgee can appeal to the pledge.