Hello, everybody.!!! Welcome to "INTROSPECTION". I'm back with another post "SHARING". Which is about the stock market. Let's directly dive in...
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HOW DO STOCKS EVOLVE: This happens with the "INITIAL PUBLIC OFFERING(IPO)" process. IPO can be defined when a company or business' owner invites an individual or public investors to invest, by selling the shares to them in return. Generally, companies do this during the initial stages to raise capital for expansion or development by avoiding bank loans.
But what does share actually mean?
SHARE OR STOCK: A share is simply a certificate that acts as evidence of the investment made. We can also look at that as the bill given to investors. But if the sales and profits of the company increase then the value of the share also increases. However, there is no physical format of share available nowadays, as everything is digitized.
There are two types of markets in which we can own the shares. The primary market is when a company becomes public (IPO) and the owner asks us to invest. The company will then be listed on the stock exchange entering the secondary market, becoming available to the public.
WHAT IS A STOCK MARKET: It is simply the place where buying and selling of shares happen. In India, there are mainly two stock exchanges, namely the National Stock Exchange(NSE) and the Bombay Stock Exchange(BSE).
These stock exchanges are open Monday to Friday (9:15 a.m. to 3:30 p.m.). But we can't just go out there and buy any stock we need because it's not a vegetable market, it's a stock market. For that, we require a Demat account which is provided by a lot of brokerages or brokers. They are service providers who help us with the stocks we require in exchange for our money.
NIFTY & SENSEX: These two terms are the stars of the show, they are always on the screen out there and yet very un-revealing.
When we open an online stock brokerage there is so much going on there which is quite frustrating. There are so many terms which we see. I'm going to explain some of those basic terms to reduce some confusion.
Types of orders:
There are two types of trading:
Time for example..!!!
Case-A: lets us say I bought 1 share at Rs.100 (delivery) from a company ABC.LTD.
Consider subscribing to "INTROSPECTION" to receive email updates for every new post. And you can access our other blogs from the drop-down on the top, take a look at it..!!
But what does share actually mean?
SHARE OR STOCK: A share is simply a certificate that acts as evidence of the investment made. We can also look at that as the bill given to investors. But if the sales and profits of the company increase then the value of the share also increases. However, there is no physical format of share available nowadays, as everything is digitized.
There are two types of markets in which we can own the shares. The primary market is when a company becomes public (IPO) and the owner asks us to invest. The company will then be listed on the stock exchange entering the secondary market, becoming available to the public.
WHAT IS A STOCK MARKET: It is simply the place where buying and selling of shares happen. In India, there are mainly two stock exchanges, namely the National Stock Exchange(NSE) and the Bombay Stock Exchange(BSE).
These stock exchanges are open Monday to Friday (9:15 a.m. to 3:30 p.m.). But we can't just go out there and buy any stock we need because it's not a vegetable market, it's a stock market. For that, we require a Demat account which is provided by a lot of brokerages or brokers. They are service providers who help us with the stocks we require in exchange for our money.
NIFTY & SENSEX: These two terms are the stars of the show, they are always on the screen out there and yet very un-revealing.
- Nifty is based on the top 50 NSE-listed companies. The individual stock values and the volumes of those companies shall be considered for the calculation of Nifty points.
- Sensex is based on the top 30 BSE-listed companies. The individual stock values of these companies and their volume are taken into account for the calculation of Sensex points.
When we open an online stock brokerage there is so much going on there which is quite frustrating. There are so many terms which we see. I'm going to explain some of those basic terms to reduce some confusion.
- Open(opening price): This denotes the particular stock's price during today's business opening time at 9:15 a.m. This won't be equal to the closing price(most of the time) as it varies due to aftermarket orders.
- Close(closing price): The last traded price of any particular stock on the previous day at 3:30 p.m. which is the closing time of the business.
- Low/High: This simply means today's highest and lowest price of that particular stock.
- 52 Week Low/High: Lowest and the highest price of that particular stock during the past year.
- Upper and Lower circuit: This is the range that will be decided by the previous day's closing price. That particular share's lowest and highest tradable values. This means that the price of that particular stock can not be lower than the lower circuit mentioned, in the same way, it can not be higher than the higher circuit mentioned.
- Volume: The number of stocks(of the same company) exchanged on that particular day.
- Depth: This is a table showing various other offers made on that particular stock so that the customer can know what that share's demand and supply are.
Note: Bid price - price for buying, Ask price - Selling price, Quantity - No. of stocks the person is ready to buy/sell.
- Limit order: We can decide the price of the stock. The transaction takes place whenever the buyer or seller on the other side matches our price.
- Market order: Buying and selling for the market price.
- Stop-loss order: This option can be selected during the transaction. This allows us to sell the stock automatically if the price drops below the purchase price. We can set the price the stock has to be sold at.
- Aftermarket order: This is when a person places an order after business hours, even though the order is placed after business hours, it will only be executed during business hours of the next day.
There are two types of trading:
- Intraday: This is intended for day-to-day traders. You're supposed to sell the shares you're buying on the same day.
- Delivery: Buying and selling can be done anytime.
Time for example..!!!
Case-A: lets us say I bought 1 share at Rs.100 (delivery) from a company ABC.LTD.
The buy bill will be Rs.100.1 including brokerage charge of 0.1%.
and if I sold that one share for 105 then receiving price will be
105- Demat transfer charges- 18%(brokerage charge of 0.1% of buying or selling price+ Demat transfer charges).
I.e., 105- 19-18%(0.1%(105)+19)
=> 105-19-18%(0.1+19)
= Rs.82. 5/-
In this example, although you bought a stock for Rs.100/-and sold it for Rs.105/-, you only got Rs.82.5/-. By this example, I intend to say that there are some extra charges, such as Demat charges, brokerage charges, GST, etc. which varies with brokerages while doing the transaction.
To avoid this type of loss, you must monitor the "BREAK-EVEN POINT".
Case-B: As in case-A I bought a stock of Rs.100/-, but this time I sold it for Rs.124/-, now what I finally get is
=> 124-19-18%(0.1%(124)+19)
=> 124-19-18%(0.1+19)
= Rs.101.5/-
Here Rs.124 is the break-even point for me to avoid loss on that particular stock. Anything less than that is a loss, even if my selling price is more than my buying price.
This break-even point variation depends on several parameters, such as the number of stocks we buy/sell, the period when the stock is kept with us. Even, there will be monthly maintenance charges for any brokerage company.
Don't miss these: Field of stocks is not that difficult and at the same time it's certainly more than buying and selling. Whenever we decide to buy a stock there are some questions we need to answer, they are:
This break-even point variation depends on several parameters, such as the number of stocks we buy/sell, the period when the stock is kept with us. Even, there will be monthly maintenance charges for any brokerage company.
Don't miss these: Field of stocks is not that difficult and at the same time it's certainly more than buying and selling. Whenever we decide to buy a stock there are some questions we need to answer, they are:
- What is the news to be collected about the stock and the company to which it belongs?
- How to study the candlestick chart?
- How to know the leverage/margin of that stock?
- What is meant by support and resistance?
- How to understand the psychology of the market?
Way to pitfalls:
- Buying a company's stock just because it is well known for us.
- Buying a stock just because somebody suggested.
- Never ever judge a stock by its price.
As most people say, the stock market isn't completely risky. Yes, yes.!! It's risky if you start trading with no proper knowledge. All that is needed is proper wisdom and patience, but not the degree of a chartered accountant or financial expertise. So, all the best..!!!
Thank you..!!!
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Don't hesitate to share it with your friends, if you find it useful and helpful.
Thank you..!!!
Put a comment, if you like the post.
Don't hesitate to share it with your friends, if you find it useful and helpful.