Stock Market

Disclaimer

The explanation given below is very simplified, this is done to inculcate the general understanding to the concept. However, the actual concept is much more complicated and includes interpreting a lot of Laws, Rules, Market Conditions, Market Predictions and other Caveats.

What Is Stock Market?

Stock market, also known as share market, or equity market, is the platform where people can buy and sell different shares, bonds and other securities of different companies. There are two national level stock market in India, one is National Stock Exchange (NSE) and other is Bombay Stock Exchange (BSE).

What Is A Share?

A share represents a very small part of the company which signifies ownership of the shareholder on such company.

For example, there’s a company named ABC Ltd., the total number of shares of ABC Ltd. Is 1,00,000 and you have 100 shares of ABC Ltd. This means that you own 0.1% of ABC Ltd.

There are Three major ways for a company to introduce new shares in the market and they are known as IPOs (Initial Public Offerings), FPOs (Follow-on Public Offerings) and Right Issue.

IPOs (Initial Public Offering)

When a company which is not already registered on the stock market wants to get registered there it has to issue an IPO. As the name suggests, it is the first time the company is offering its share to the public, this might include different portions pledged for different people, like Institutional Investors, Retail Investors and Employees. These shares are generally sold in lots (i.e. in bundles) and carries a price range, interested investors can bid for any amount in that price range.

For Example, in SBI Cards IPO the lot size was 19 Shares and the price range was ₹ 750-755 per share.

FPOs (Follow-on Public Offerings)

When a company is already trading on a stock market and wants to raise more money it can issue an FPO. Similar to IPOs the FPOs might also include different portions pledged for different people, like Institutional Investors, Retail Investors and Employees. These shares are also generally sold in lots (i.e. in bundles) and carries a price range, interested investors can bid for any amount in that price range.

For Example, in Yes Bank FPO the lot size was 1,000 shares and the price range was ₹ 12-13 per share.

Right Issue

A Right issue grant existing shareholders the right to buy new shares at a discounted price compared to the current market price. Here the company decides how many shares an existing share holder can purchase on discounted price.

For Example, in Shriram Transport Finance Co Ltd (STFC) Right Issue the company decided to “Investors holding 26 shares, will be eligible for three rights offering” at the price of ₹ 570 per share. The market price of share on 15^th Jul was ₹ 654.55.

How To Trade In Share Market?

Starting trading in the share market is very easy. All you need is a “Demat Account”. There are many stock brokers where you can open a demat account like, Zerodha, Angel Broking, Motilal Oswal, Sharekhan, Edelweiss and many more. Opening a demat account is as easy as opening a bank account, in fact you can do it totally virtually. While opening a demat account one should always check and familiarise him/herself with the price structure of the specific broker.

After opening a demat account, you can simply add funds to the account and start trading in shares.

Before starting trading, one shall familiarise him/herself with the basic terminology used in the market. Some of the basic terminology and their meaning are as follows.

1. Buy: - to buy share in a company.
2. Sell: - to sell shares of a company.
3. Bid: - what you are willing to pay for a stock.
4. Limit Order: - the order will only execute at price placed for buy or sell.
5. Market Order: - the order will be executed at current market price.
6. Day Order: - It is a direction to a broker to execute a trade at a specific price that expires at the end of the trading day if it is not complicated.
7. Capitalization: -Value of company based on current share price.
8. Dividend: - Portion of the company’s earning which is paid to the shareholders.
9. Portfolio: - A collection of investments owned by you.
10. Bear Market: - It’s a market condition where the prices are expected to fall.
11. Bull Market: - It’s a market condition where the prices are expected to rise.
12. Volatility: - how fast the stock is moving up or down.

 

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