Stock Share Market Basics For Beginners – If you are an expert, you may have read and learned a lot about Stock Markets. But, what if you are an amateur or a newbie in the stock market world? Today we will take you back to the basics of investing in stocks. Don’t miss these excellent Stock Market Basics for Beginners, a complete guide to understanding and simplifying complex concepts.
Imagine entering the dynamic and dynamic field of the stock market, you may not know these important and interesting terms and concepts.
Stock Share Market Basics For Beginners
These are simple market terminologies that a prospective investor or trader should go through before entering the strong neck area.
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A share represents a share of ownership in a public company. As an investor this allows you to generate financial gains from owning a part of that company. Simply speaking, stock is a share of a company that can be bought or traded by investors. If you buy a stock, you become a shareholder in that public company. This means you get equity in that company. The performance of the company along with other important factors affects the stock price. Therefore, the value of the stock may increase or decrease, meaning that its shareholders will gain or lose money from it.
Joint ventures represent ownership in a company. A common stock investor is entitled to receive dividends and benefit from the appreciation of the shares. As a shareholder, you also get one vote per share in voting for board members. But, if the company goes bankrupt, the common shareholders will not get paid until the creditors, bondholders and preferred shareholders are paid.
Preferred stock represents some degree of ownership in a company. However, shareholders do not have the right to vote. However, for preferred stocks, dividends are declared before common stocks. Preferred stockholders also have priority over common stock stockholders in cases where liquidity is desired.
A stock market is a platform where stocks are bought and sold, just like food is bought and sold in a grocery store. Now, it is available in electronic form. You can access the market electronically from your computer/mobile phone. There is a stock market to help you make your transactions easier. So, if you want to buy a share, the stock market helps you find a seller, and vice versa. There are two major stock exchanges in India: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
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The average person does not own the stock directly. To trade on an exchange, you need an intermediary, called a broker. The stock exchange allows these brokers to trade. Therefore, every stock broker is registered as a trading member of the stock exchange and has a broker’s license. These stock brokers charge a fee for their services which is referred to as brokerage.
Stock prices fluctuate due to two important factors: Supply and Demand. Assuming more people are willing to buy (demand) the stock instead of selling (demand), the share price will rise. Conversely, if more people want to sell a stock than buy it, there will be more supply than demand, and the share price will fall.
There are several key factors that can affect the stock price. However, one of the key factors is Company Profits. A company earns more; more people will be willing to buy it. Companies listed on the stock exchange have to publish their earnings for each quarter (quarterly results 4 times a year) and annual earnings (annual results once a year). If a company’s results are better than expected, the stock price will rise and if the results are disappointing, the stock price will fall.
Market sentiment also plays an important role in this matter. When positive announcements are made, market participants tend to buy the stock at any given price and this causes the stock price to rise.
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Dividends are the amount that a company pays to its shareholders. While the main part of the net profit is retained by the company for ongoing and future business activities, the rest can be allocated to the shareholders as dividends. Sometimes, companies don’t make a profit but continue to pay cash to maintain their regular cash-making record.
As a company grows and earns large profits, the demand for its stock usually increases, as does its price. If a company’s profits shrink, investors will want to sell their shares, and the stock price will fall. To buy a stock successfully, so the value of the stock increases after the purchase, the best policy is to collect as much information as possible. Research the company, examine it from different angles, and test the relationship between the company and its stock price.
A stock index is a statistical measure that shows the changes that occur in the market. It shows the general sentiment of the market and the direction of the price movements of the products in different segments of the market. It is a tool used by investors and financial managers to describe the market and compare the returns of specific investments.
To create an index, a number of stocks are selected from securities already listed on the exchange and grouped together. There are various methodologies for constructing individual indices, but most calculations are based on the mathematical weighted average of these selected stocks.
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Sensex and Nifty are two major stock indices based on shares of well-known companies. These are related to two different national stock exchanges in India, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) respectively.
Sensex or BSE30 is the market index for companies listed on the Bombay Stock Exchange (BSE) whereas Nifty or Nifty50 is the market index for companies listed on the National Stock Exchange (NSE).
The first sale of a company, which is issued by the company itself, is called an initial public offering (IPO). This means that the company is offering stocks to the public for the first time. The main purpose of an Initial Public Offering (IPO) is to raise funds that can be used for various reasons – for CAPEX, debt restructuring, rewarding shareholders, etc.
Market capitalization refers to the total value of all shares of the company. You multiply the value of a stock by the total number of outstanding shares, the resulting value is “Market Cap”. For example, a company selling 20 million shares at Rs 50 per share will have a market capitalization of Rs 1 crore.
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Companies are generally classified by market capitalization: large cap (20,000 crores or more), mid cap (5000 crore to 20,000 crores), and small cap (less than Rs. 5000 crore).
Fundamental analysis is a methodology for assessing the true or fair value of a stock (known as intrinsic value), which is further used to determine whether it is undervalued or overvalued. If it is undervalued, it is recommended to buy and if it is overvalued, it is recommended to sell. This method looks beyond a company’s share price to measure its true financial health. Revenue, earnings and profit growth are some of the key factors that are considered during the analysis. This approach helps the investor more in decision making while investing for the long term.
Technical analysis is a method used to predict future stock prices based on historical stock price movements. This analysis takes into account only two things: the prices at which a stock has traded, and the volume of shares traded at those prices. Considering these two factors, technical analysis simply locates patterns in stock price behavior. This approach helps the investor identify trading opportunities by analyzing statistical trends gathered from trading activity. Technical analysis is more prevalent and useful in traders as well as forex markets where traders focus on short-term price movements.
“Bull Market” is used to describe an economic phase leading to growth and optimism. This term is primarily used in the stock market, however, it can also be used for bonds, currencies, and other securities. Bulls are optimistic that the stock market will rise in the future. People tend to buy more stocks to pay higher gains.
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On the contrary, Bears are pessimistic about the future and expect the stock market to fall. “Bear Market” is an economic indicator of pessimism in the stock market. There comes a time when you see stagnation or decline, investors have less confidence in the economy. As a result, more people start selling stocks instead of buying them.
Does that sound like a good strategy? One should not be afraid in such a market and act calmly.
You can call it, Intraday Trading or Day Trading! Here the trader buys or sells the stock on the same day. Day traders quickly record profits or losses. They close their trade before stock market closing hours. You can hold stocks for a few hours, a few seconds and a few times, all in one day. Intraday trading is very volatile and requires a quick decision compared to other types of trading.
Also known as delivery trading