What exactly is the stock market?
Before understanding the stock market, you must first know the term stock [ share or equity]. A stock represents ownership interest of a person in a particular company listed in the stock market. In practical terms, owning a share is actually being a part-owner of a company in which you hold a share.
A share market is a market which allows us to buy or sell a share. the stock market provides us with an opportunity where we can use our savings (idle capital) to invest in a stock and could withdraw that amount after a long term profit.
Let’s understand the two parts of the stock market:
The market where companies raise the capital by issuing share directly to the public through the stock market. The capital raised through the primary market is then used by the company for their expansion, liability, operational cost or other miscellaneous expenditure.
The market where shares are traded after its issue in the primary market. The sole purpose of the secondary market is to feed liquidity to shares bought in the primary market as it provides investors in the primary market the ability to exit their positions according to their strategy.
DEEP UNDERSTANDING ABOUT STOCK MARKET IN INDIA
The Securities and Exchange Board of India (SEBI) is the regulator of the securities and commodity market in India owned by the government of India. The regulatory body lays focus on monitoring and regulating the securities market in India to safe ground the interest of investors and aims to manage a safe investment environment by the designed set of rules.
“A stock market is a device for transferring money
From the impatient to the patient.”
When is a company listed in the stock market?
- Companies which established before ‘n’ no. of years can file the paper with SEBI to get their approval for getting listed in the stock market.
- Once SEBI approves the file then it will be published in all leading news websites along with that the price of the stock is also announced.
- Once the Initial Public Offer is closed the company gets listed in the stock market after a few working days.
- Now the company shares can be traded in the stock market after these dates and it would be called a secondary market.
- From the starting price band, the stock value can increase or decrease based on the market condition.
- The company can list its stock in NSE or BSE or both(approved by SEBI)
What are the different trading forms?
An intraday trade refers to buying and selling the stock on the same day which allows the traders to buy and sell the same quantity of stock of the particular company on the same day before 3:15pm.
the aim is to earn profit through the movement of market indices.
1.) SCALPING – Traders try their hand at making numerous small profits on small price fluctuation throughout the day.
2.) RANGE T. – In this type, traders mainly use the support and resistance levels to determine if the stock is worth to buy or sell.
3.) NEWS T. – The buy and sell of a share is dependent on the latest and volatile news of the particular company.
*DELIVERY BASED TRADING:
The investors basically pay the full price of the stock and then they are directly deposited in their Demat account. In the case of selling the shares in this type, there is no predefined time limit.
1. Not time-bound: It makes trading rather a more valuable because here we don’t meet restriction as to how long we should hold on to our stock that is we can until the stock gives us a good profit based on the capital we invested.
2. Added benefits: These benefits include bonus shares, dividends, a split of shares, etc.
1.) Brokerage rate: This form of trade usually kick in brokerage slightly higher than the normal rates.
2.) Full payment: Unlike margin trading, when we buy stock in deliveries, then the full payment has to be made.
3.) no short selling: The shares are to be held before selling them.
1.) In this case, the capital is generated by collecting from various investors and an experienced mutual fund manager would invest the money in various stocks and debt instruments.
2.) Equity-based mutual funds are categorized on the basis of company market capitalization into large-cap, mid-cap, small-cap, multi-cap, etc.
Debt funds are divided into short term debt fund, long term debt fund, ultra short term debt fund, liquid fund, etc.
3.) Equity mutual fund provides a higher return than debt mutual fund but the risks are also high.
*FUTURE AND OPTIONS:
Futures and options can be referred to as derivatives( financial instruments that derive their value from an asset).
Futures are the type of derivative in which the buyers promises the seller to buy the underlying asset at a future time at a price fixed today. These are contracts where the buyers have an obligation to buy the asset, without caring what the market price ends up like.
Options are financial instruments that provide the seller a right, but not an obligation to buy the underlying asset for the future with a price fixed today. Options tend to favour the buyers as if the prices are not going up to the mark, they can choose to not execute the contract.
Just as we trade the shares, in FOREIGN EXCHANGE(forex) trading we buy foreign currency at a bid price then sell it at a higher price in future for profit booking.
For example, when the value of USD increase then the INR value decreases and vice versa.
So when the value of USD increases, we should buy USDINR but if the value decreases, we should rather sell the USDINR.
If you buy USDINR at 69.50 and sell it at 70.00, then you are booking a profit of 0.5 on a single pair.
Generally in forex trade, we need to trade on at least 1000 pairs, so if we are making a profit it would 1000 times the profit on a single pair.
A commodity is a group of assets/goods that are vital and daily usable in everyday life, such as metals, foods and precious metals.
Categories of tradable commodities:
1. Metals(gold, silver, platinum, and copper)
2. Energy(crude oil, natural gas and gasoline)
3. Livestock and meat(lean hogs, live cattle and feeder cattle)
4. Agricultural(wheat, rice, coffee, sugar, etc.)
Major Commodity Exchange in India:
1. Multi commodity exchange of India Ltd (MCX)
2. National Multi Commodity Exchange
3. National Commodity and Derivatives Exchange Ltd. (NCDEX)
4. Indian Commodity Exchange (ICEX)
5. Universal Commodity Exchange.
What is the classification of stocks?
* A GROUP (highly liquid)
- The stock categorized under A group is the most liquid counters amongst all the other stock listed on the BSE.
- The stock under a group are rated excellent in all aspects and they also show comparatively high traded volume during a trade.
- Settlement of group A stocks trade is done under the normal rolling settlement process.
* T GROUP (trade to trade)
- Each trade in this group is considered as a separate transaction and there is no getting out of trades as in the rolling system.
- The traders who buy or sell shares of this category, have to pay the amount or deliver the shares by T+2 days.
* S GROUP (small and medium)
- The BSE index includes small and medium companies that are listed in the regional stock exchange.
- Generally, the companies under S group have a turnover of around Rs 5 crore and tangible assets of Rs 3 crore
- Low liquidity is the other risk of companies under the S group apart from the small size.
* TS GROUP (mix of T&S)
- It also consists in the BSE Indonext segment
- these stocks are settled on a trade to trade basis as a surveillance measure.
* Z GROUP (caution)
- The companies under this group have not completed with the exchange’s listing requirement.
- It includes stocks of companies that have Demat arrangement with only one of the 2 depositories-CDSL & NSDL.
- These companies already have a poor score in redressing investor complaints.
* B GROUP (left behind)
- companies which do not fall under any group discussed above.
- These companies see normal volumes and are settled under the rolling system.