A contract note is an official record of a stock exchange transaction executed with the help of a stockbroker. The note is given to the investor by the broker at the end of a trading day, listing down the shares that have been bought and sold throughout the day.
The finer details of every trade are listed on this contract note in the stock market. Every investor should understand how to interpret it, ensure all aspects of trades are covered when they receive one from their broker, and understand why it is important for them as traders.
What is a contract note and how to interpret it?
A contract note in the stock market is an account of all the trades completed on a particular trading day by the broker for an investor. It acts as official legal proof of all transactions for both online and offline trading. Every investor should know how to interpret it.
Whenever you get into the details of a contract note, you will find the following information:
- The number of orders and names of the trades undertaken throughout the day
- The time when each trade was executed
- The symbols of all the securities traded
- What type of action has been taken when buying or selling shares or assets
- What kind of trade has been made—intraday or delivery
- The quantity and price of each trade executed
- Brokerage fees or any charges that were levied while trading
- Was the net amount that each trade generated payable or receivable
Also read: Pairs trading
Contents of a contract note
Contract notes in the stock market are created for all trades or transactions of stocks and shares undertaken by the broker on an investor’s behalf. It includes all the details of every trade executed on the same trading day. These columns are numbered and act like a formatted bill generated daily and sent to your registered email ID. Some of the sections in the contract note include:
Per unit gross rate
This is the price or rate at which your trade was completed by the broker.
Buying and selling
This section explains the type of order placed by an investor or trader.
Per-unit brokerage
This refers to the brokerage fees that are levied on every trade.
Quantity of transactions
The amount of shares or securities traded is included in this section as either a positive or negative amount by the broker. Positive amounts are orders that have been placed for buying, while negative amounts are listed for orders that are being sold.
Net total (before levies)
This is the base amount of every trade undertaken throughout the day. Basically, before any fees or additional charges, the underlying cost of the stock is attached in this section.
What is a contract note for shares?
Now that we understand a contract note's meaning, it is time to understand its importance and purpose for an investment in the stock market.
- A contract note in the stock market acts as a confirmation of all the trades executed by an investor or broker on a given date during trading hours.
- The net and gross amounts are made clear. There is utmost transparency regarding all the fees or charges levied on the transactions.
- A digital contract note is generated for online traders. It mentions the total amount of brokerage levied and all other details. The note also helps an investor compare everyday differences and movements in the stock market.
Also read: Stock vs ETF
Why is a contract note important for you?
The stock market is seeing an increase in the number of investors, but this has also led to a surge in fraud and conflicts. To protect the interests of investors, the Securities and Exchange Board of India (SEBI) has implemented several measures.
One such step is the use of digital contract notes in the stock market that display the expenditures, brokerage fees, service tax incurred, and securities transaction tax (STT) in a fixed format. By reviewing such a document, investors can be confident that there is transparency and that their broker executed their order properly. This document is also necessary for filing a lawsuit or arbitration action against the broker in case of any misconduct or fraud. Hence, it is necessary to rely on your broker for timely delivery of the contract notes.
Also read: Equity share and preference share
Conclusion
A contract note in the stock market is quite significant, considering it serves multiple purposes for traders and investors. One of the primary functions of the document is to calculate the total brokerage amount, capital gains, and other information necessary for filing an income tax return for an investor. You should be able to interpret and compare the data in your contract notes to be a responsible and informed investor in the stock market. It is also recommended that you keep an open line of communication with the broker to allow for transparent discussions and queries to be answered both ways so a healthy investor-broker relationship can be maintained.
The most crucial aspect of the contract note is that it acts as legal proof in case of any disagreement with the broker. This document assists in cross-examining the authenticity of the transactions made in the stock market. Hence, it is advisable to keep the contract note safe and secure for future reference and to avoid any potential disputes with your broker.
