Stock Market is the key component as it serves as a platform for trading of company shares and other securities online. Stocks can be traded only after listing it on Stock Exchange. Thus, it serves (NSE) as a meeting place for the stock’s buyers and sellers. They decide the stock price and buy and sell stock. Primary Stock Exchanges of India areBombay Stock Exchange (BSE) and the National Stock Exchange.
WHAT ARE STOCKS?
- It is a kind of a share that stock holder gets in the ownership of the company
- Buying shares of same company result in increasing stake in that company. Word “Stock” is termed differently by different people like shares, scrip, equity etc.
WHAT ARE DIFFERENT TYPES OF STOCKS AVAILABLE?
Stocks are divided into various categories:
- Divided on basis of Size of market capitalization like Large-Cap Shares, Mid-Cap Shares & Small-cap shares
- On the basis of different sectors like IT, Pharmacy, Banking, etc.
- Divided on the basis of methods of stock issue like Preferred and Common stock
WHAT ARE DIFFERENT KINDS OF SHARE MARKETS?
There are two types of markets:
The primary market is that when the company lists itself on the stock exchange for the first time by launching Initial Public Offering (IPO).
- After new securities are sold in Primary market, then these shares are further bought and sold in secondary market
- Secondary Market provides option to the investors to exit
- Transactions that take place in the Secondary market is considered as the trade where investors buy and sell shares from each other through stock exchange at the price prevailing or at price of their choice.
- Normally, such kind of transactions is done keeping broker as intermediary
STOCKS ON THE BASIS OF MARKET CAPITALIZATION:
Stocks are divided on the basis of market value of the company. These are:
- Large Cap stocks are stocks of large companies having large market capitalization like Infosys, Reliance etc.
- The shares of these companies are also known as “Blue Chip firms”
- These stocks draw you sustainable returns over a period of time and are considered safer, because these are renowned companies and are able to handle the downfall in market also there are minimal chances of going bankrupt for these companies
- These shares are less risky
- Mid-Cap Stocks are stocks of Mid-size companies that are in development phase
- These stocks can earn you the high rate of return during the bull market phase. As these companies have the potential of growth. But, rate of return is more than Large Cap stocks but less than small cap stocks
- The risk involved in these kinds of shares is larger than the large cap but less than small cap shares. As these companies have less potential to sustain market crash and also take a lot of time to recover from these crashes.
- Small-Cap shares are stocks of small-size companies
- These stocks can earn you a very high rate of return during the bull market phase. As these companies have huge growth potential
- Risk involved in these kinds of stocks is also very high
- It is advisable only for people with high-risk appetite to invest in these stocks
LETS UNDERSTAND THE TERMS USED IN STOCK MARKET
Company name and symbol
- Every share in stock market allocated NSE & BSE Code and instead of using the whole name instead they use a symbol which is short for. Example For Infosys term used is Infy etc.
During the time stock market is open the price of a share keep on fluctuating. This is due to the fact the more number of shares are sold the price goes up and vice-versa. This results in the fact that the share price is continuously changing. After the market is closed the lowest price of the share for that particular day is called “Day’s Low” and the highest price of the share for that particular day is considered “Day’s High”. Also, the difference between highest and lowest price lets you know about the volatility in the price of stock.
Closing price helps to ascertain the how much price of the stock has changed. Change is written in value as well as percentage. Calculation is as follows:
Net Percentage Change= Previous closing price – Subtract today’s price
- Closing price
This is income for a shareholder in form of dividend where the company declares a percentage of profit to show their strength in the market. It is a reward for long term investor.
It refers to the highest and lowest price on which stock has traded during last 1 year.
PE Ratio stands for Price Earnings ratio of Current stock price to Earnings per share. This is an indication that how well the company is performing and how it is being rated among all its competitors.
It refers to the quantity of shares available for trading. It shows liquidity of stock where buyer and seller can exit easily and change in volume also indicates that some movement is going to happen in stock.
The bid is a price when investor place to buy that particular stock and offer is a price where investor place to sell that particular stock.
It is a process where you try to earn the profit when the price of the stock is falling. But, at the end of the day, you have to buy that stock as this facility is available only for a single day.
This is a process to exit from the position taken by buyer and seller.
It is where you have to set the price of your transaction in advance so that whenever the price comes the trade will be executed automatically.
This is a process where you are ready to buy and the sell the stock at current market price. As when there is fluctuation in the market sometimes it is difficult to catch the price so you take this route to execute the order at any price.
Stop Loss Order Price
It is a price where at which you want to limit your losses so at the time of fluctuating market instead of catching the price it is better to set in advance. An order price is a price where you want to set the target of your trade.
DIFFERENT MODES OF BUYING AND SELLING OF STOCKS
In this mode, you place an order by calling and visiting your broker where this is a useful mode if you don’t have time to watch the trade but someone on your behalf is watching your trade and execute as per your instruction.
In this mode, you have been allocated online access of trading website or mobile application where you yourself watch the trade and responsible for execution
Demat & Trading account
After choosing your broker you have to open Demat and trading account with that broker. Demat accounts hold your shares and trading account gives you platform for all execution of trades.