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How to profit from share trading in Sri Lanka

To invest in the stock market, investors are required to contact stock broking firms for assistance. Broking firms are intermediaries between investors and the market. One cannot start and complete an investment procedure on a stock exchange without the involvement of a stockbroker. However, only registered stock broking firms can trade directly on the colombo stock exchange.

There is a good number of equities broking firm operating in any market. However, it is advisable to seek guidance first of all before choosing a particular stock broker. This is because some firms accept or deal with private investors and some prefer to do businesses with institutional investors only. Others require high minimum sum of money to be invested on the market. Looking around for a suitable broking firm is necessary and strongly recommended before you leave your hard earned money with them. The broking members give advices on share or equities investment, act as agents to buy and sell, and, administration of portfolio of shares. In any country, investors are required to open a trading account with a registered broking firm before they could start trading. Investors’ instruction can only be carried out by a broking firm when there are sufficient funds deposited into the account. It is important to note that broking firms are allowed to levy brokerage charges freely.

The stock broking members are independent or separate companies from the Colombo Stock Exchange in Sri Lanka. However, it must be remembered that these firms are regulated the Colombo stock exchange in so far as their activities in the market are concerned.

Stock Broker Vs Stock broking firm
A stock broker must not be confused with stock broking firm. The stock broker is a person suitably qualified to invest people’ money on the market on behalf of the stock broking firm. These professionals provide share investment related services – for a fee on behalf of their firms - to anyone who wants to buy or sell shares on the market. There are many shares listed the Colombo stock exchange. If a potential investor doesn’t know when and which shares to buy, the role of stock brokers is to give the necessary advice and then buy on behalf of the investor. Stock brokers are permitted to act as either an ‘agent’ or principal. The difference between the two is that – ‘agent’ means that the broker is buying direct from the market, and trading as principal means that he is buying from his company’ account. The status in which the broker is acting must be disclosed to the investor concerned.
Investors who know procedures of the market, and who need not broker’s advice may request to open what is called trading mandate account. This type of an account will enable an investor to participate in the market without an input from a stock broker, thereby also bringing charges down. However, if the investor wants to get assistance with appropriate advice, they can request for such service.

Functions of a stock broker

A stock broker is a professional who buys and sells stocks and other securities in the stock market through the bookings from the stock investors. Brokers provide different types of services to their clients.

i. Execution Function - In this service the broker only carries out the trading according to the direction of the investor. This is the basic and the most commonly used service of the brokers

ii. Advisory Dealing Function - In this service the broker not only performs the buying and selling instructions of the client but also advises the investor about which stock to buy and which stock to sell.

iii. Discretionary dealing Function - This is the most comprehensive service that a broker provides. In this case the broker has the discretionary power to take the investment decisions on behalf of the investor.

Know what you do
These are the basic services provided by the stock brokers and it is completely dependent upon which service you will subscribe to. For example, if you are quite apt at stock market analysis and can regularly watch on the happenings of stock market and the stocks in which you invest, it is better to have a stockbroker to execute your buying and selling instructions. It will not only save the service charges but also give you full confidence in stock market trading.

If you are relatively new to stock investment or if you do not have adequate knowledge of stock analysis or if you do not have the time or resource to do thorough research on the stock market the advisory service is effective for you. It will not only execute your trading directions but also provide you with effective tips and guidance for stock market investment. Though it will be a bit more expensive but then you can significantly gain from the technical knowledge and experience of the broker and its research and analysis team.

The full service broker is the preferred solution for those who do not have the time or knowledge to maintain their portfolio. In this case the broker takes all the decisions and performs all the functions on behalf of the clients for investing in the stock market. This is the most costly broking service but then it will not require you to spend any time for your stock market investment.

Just like the different types of stock broking services, there are different categories of brokers as well. While choosing your stock exchange broker, it is wiser to select from the reputed stock trading companies as that will make sure you gain from their robust infrastructure from analysis and experience in stock market.

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