Basics Of Stock Trading For Beginners – We all understand that market share is a partial ownership of a company. So if a company issues 100 shares and you own 1 share, you own 1% of the company. A stock market is a place where stocks of various companies are traded.
When a company goes through an initial public offering (IPO), it is called a primary market. The usual purpose of an IPO is to get the stock listed on the stock market. Once the stock is listed and purchased, it begins trading on the secondary market.
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The market determines the share price according to the normal rules of supply and demand. Usually, stock prices go up when a company is growing very fast or making very good profits or getting new orders. As demand for a stock increases, more investors want to buy the stock at a higher price, and thus the price rises.
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Companies require money to carry out large projects. They raise this by issuing bonds and repay the bondholders through the proceeds of the project. Bonds are a type of financial instrument that multiple investors lend to companies.
A number of similar stocks are combined to create an index of listed companies. Classification can be based on company size, industry, market capitalization, or other categories. The Sensex is the oldest index comprising the stocks of 30 companies, accounting for about 45% of the free-floating market capitalization. The Nifty comprises 50 companies and represents about 62% of the free float market value. Others include sector indices like Bankex, market capitalization indices like BSE Midcap or BSE Small Cap and others.
Online trading is all about buying and selling stocks over the internet from the comfort of your office or home. You need to login to your trading account and you can buy and sell stocks. Online shopping is done by visiting your broker’s office or by calling your broker.
A broker helps you make your purchases and sales. Brokers typically help buyers find sellers and sellers find buyers. Also, most brokers will advise you on which stocks to buy, which stocks to sell, and how to invest in the stock market for beginners. A brokerage fee is charged for that service.
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Anyone capable of entering into a contract can buy and sell shares in the market. Can I open a trading account with a broker and buy and sell shares in a stock once the trading account is opened?
There is an important difference between the two. A trading account is where you do your buying and selling. A demat account is where your shares are held. When you buy shares in your trading account, your bank account is debited and credited to your demat account. The opposite happens when you sell shares.
The main difference is that trading stocks is the short-term buying and selling of stocks, while investing is the long-term holding and buying of stocks. A trader usually tries to sell money quickly after short-term events and market movements of any company’s stock price, while an investor tries to buy a good stock in a single brand and wait for the stock price to appreciate over time.
Every order executed in the stock market must be settled. Buyers receive their share, and sellers receive a profit from the sale. Settlement is a process in which buyers buy shares and sellers receive their money. All trades must be settled at the end of the day. In other words, the buyer pays for the purchase and the seller delivers the sold shares in the stock market on the same day. Indian stock markets accept T+2 settlement, which means that trades are settled on the first day and the settlement of these trades should be completed within two business days from the first day. However, T+1 is currently being phased out.
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SEBI belongs to the Securities and Exchange Board of India. Because stock markets have inherent risks, a market regulator is necessary. SEBI is empowered with this power and is responsible for development and regulation of the markets. The main objectives include protecting the interest of investors, developing the stock market and regulating its operation.
The stock market and the derivative market are part of a common stock. The difference lies in the products being traded. The stock market operates in stocks and shares, while the derivative market operates in futures and options (F&O). The F&O market is based on fixed assets such as stocks.
Fundamental analysis focuses on the company’s performance, growth prospects, profitability, debt, etc. is to understand. Technical analysis focuses more on charts and patterns and tries to find previous patterns to refer to the future. Fundamentals are used more by investors than by technical traders.
No minimum investment is required as you can even buy 1 share of a company. So, if you buy a stock with a market value of 10000/- and buy only 1 share, you will have to invest only $100. Of course, brokerage and legal fees will be extra.
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Statutory charges such as GST, stamp duty and STT are levied by the central or state government. The broker does not charge these fees. The broker just collects these on your behalf and deposits them with the government.
A company’s total free-float market value is the price per share multiplied by the total number of shares outstanding.
To calculate the total market capitalization of an index, the market capitalization of all the companies included in the index can be added together.
It is important to calculate individual market weights to know how much a company’s stock affects the price of the index.
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You can get individual market weights simply by dividing a stock’s free-float market cap by the market cap of the overall index. Logically, the greater the market weight, the greater the percentage change in the stock price will affect the value of the index.
Most of the trading in India takes place on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Both these stocks are traded through an online electronic limit order book. This means that buy and sell orders are matched through trading computers. An Indian stock is traded where buyers and sellers remain anonymous, providing greater transparency to all investors. Orders are placed through brokers, many of whom offer online share trading services to retail investors.
A horizontal merger is when two competing companies that offer similar products or services come together to take advantage of economies of scale. The main objectives of horizontal mergers are to reduce costs, reduce competition, increase efficiency and gain market control.
Vertical integration occurs between companies operating in the same supply chain; such as companies involved in the production and distribution of a business. Vertical integration aims for higher quality control, better information flow throughout the supply chain, greater profitability and lower costs.
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A similar merger occurs between companies in the same industry but with different lines of business. This combination leads to expansion of the product line or related market. Such mergers aim to diversify products and services, gain greater market share and increase profits.
Reverse Mergers are also known as Reverse Takeovers (RTOs). Occurs when a public company merges with a private company. Reverse mergers have helped large private companies go public without an IPO. However, since companies do not go through rigorous IPO checks before delisting, they pose a certain risk to investors.
If you know the basics of the stock market, check out our other articles on different products, commodity markets and risk management.
You can get basic knowledge about stock market from Beginner’s Guide. You can also learn about stock markets from our market course modules specially designed for beginners, investors and traders.
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Beginners can enter a market by first arranging a Demat and trading account with a registered broker. After logging into your account, you can add money to your trading account and start trading.
To invest in the stock market, you need to open a Demat and trading account with a registered broker. Once you have done enough research on the stocks you want to trade and at what price they will sell, you are ready to start trading stocks.
There are two types of stock market namely primary market and secondary market. Main market, IPO, FPO, legal issue etc. deals with new issuance of securities such as This list of securities can be traded on the secondary market.
Yes, you can invest in the stock market online. All you need to do is to open a SEBI registered Demat and Trading account