what is Stock

What is Stock

The stock market is usually not a new terminology. We always hear about the stock market from newspapers, channels, and from televisions. The stock market is an integral part of today’s world economy. We cannot think economy without stock market.

Economic growth is dependent on the stock market. Stock market exists at every corner of the world. Stock market directly corresponds to run countries economy. Indian stock market is the oldest market in Asia region.

When people talk about stock market usually they are talking about companies. Stock market provides a platform for any business owner to raise fund. The company sells ownership in percentage in terms of selling its shares.

The stock market is directly proportional to the dynamic health of the economy. World economy runs by the stock market. Any countries economical background, strength, and stability can be easily judged by respective countries stock market.

Stock markets are running via stock exchanges. The stock exchange is an exchange of shares across stock brokers and traders in terms of buying and selling shares of the company. To buy and sell shares of a company, the respective company should be listed on stock exchange.

Stock valuation is depending on many factors. East India Company is the first traded company. Early days buying selling of a share is done at restaurants or shops. These stocks were written on paper or sheet which in turn traded by investors.

The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are two leading primary stock exchanges in India. BSE and NSE are primary exchanges come with BSE index known as Sensex and NSE index which is known as Nifty 50 index.

NSE and BSE volumes are equal. Nifty 50 comes with fifty stocks whereas Sensex comes with thirty stocks. The Bombay stock exchange (BSE) is located at Dalal Street Mumbai. BSE is oldest and worlds largest stock exchange. More than 5000 companies are listed under BSE. Its capitalization is more than 2 trillion US Dollar.

Bombay Stock Exchange (BSE) was the first exchange which is being recognized by the government of India. BSE was founded in 19th century by Premchand Roychand. BSE has introduced centralized internet trading system, which enables investor and trader to invest and trade on BSE from any corner of the world.

The National Stock Exchange (NSE) is located in Mumbai. The NSE was established in 1992, which offers Internet-based centralized trading. Vikram Limaye is Managing Director (MD) and Chief Executive Officer (CEO) of NSE. National Stock Exchange (NSE) is a 12th largest stock exchange having more than 1.4 trillion US Dollar market capitals.

National Stock Exchange (NSE) enables traders to trade in future and option segment. NSE launches index future in June 2000. Future and Options segment facilitate traders to trade in NIFTY 50, NIFTY IT, and Bank Nifty segment. The average daily turnover of NSE in Future and Options segment is around 24 billion US dollar.

The market operates in two different modes of functionality i.e. Primary Market and Secondary Market. Primary Market is the market whereby issuing shares company and industry raises long-term fund via initial public offer (IPO). Secondary Market is a market where post-transaction can be executed after listing IPO, in secondary market investor or trader can buy the share or sell the share to other investor or trader.

Shares Trade

Stock Market terms

The stock market is the place where different companies are listed. Based on the company’s core business, balance sheets, and financial report one can decide trade.

Shares buying and selling is placed via stock exchanges. The stock exchange is the place where buyers and sellers meet and in the virtual online world to work together. These buyers and sellers then decide which security they want to place for trade either they will place buy orders or sell orders.

Stock trading falls into two categories of market,

Primary market

Secondary market

The primary market is a market where company shares are produced and those shares are available to purchase via company to investor directly. Shares which are produced first time and available to purchase directly from the company are referred as IPO.

Secondary Market

The secondary market is the market where shares are available for investors to trade after issuing an IPO. The secondary market is the market which is preferred by an investor to trade. When we talk about the stock market or share market, we are usually talking about the secondary market.

Popular terms in the stock market

Open – This is the first price at which stock opens when the market starts.

High – This is the highest price when the stock price reached at the highest price within the day.

Low – This is the highest price when the stock price reached at the highest price within the day.

Close – This is the stock price at the time of market close.

Volume – volume states quantity of the shares.

Bid price- buying price is called as the bid price

Offer- selling price is called offer price.

Bid quantity- the total number of shares available for buying at the time is called Bid quantity

Offer the total number of share available in the market for selling is called an offer quantity.

Buying shares- buying shares are also called as demand or bid

Selling shares- sharing shares are also called as supply or offer.

Short selling- short selling is the trading type which is usually performed by day traders. In short selling trader first, buy shares at the high price then he sells shares when the price comes to down

For example, William purchased apple share at 171 dollars then he will wait for the price to come down when share price hits at lower lever say 169 dollars then William will buy that share again. Here William gains 2 dollar profit for each share which he sold first.

Share trading: buying and selling shares for the very little span is called as share trading.

Transaction: when buying of shares and selling of shares completes then it is denoted as a transaction.

Square off: square off is the term which we always heard on television. Square off is a process of buying and sharing of shares to complete the transaction cycle.

Limit Order: share buyers can place their order at the price which they want, but the order will execute only when given price will match the current market price.

Market order: Market order is the price of the stock at which trade gets executed

For example, William is placing the buy order for Apple share at market price then his order will instantly get executed because he is placing his order at market price. Whereas sell order is the order at which trader is selling his holding at the current market price.

Stop Loss Order: The most important terminology for any investor, trade in stock market. It is an order which is placed at the time of buying the share or after buying any share to sell. The stop-loss order will limit investor’s loss. Bought share will automatically sell when share price hits defined stop-loss price.

Advantage: stop-loss price will limit the investor’s loss.

Disadvantage: stop-loss price may get triggered when small span fluctuation takes place in the stock market.

How to trade in Stock Market

How to trade in Stock Market

Usually buying and selling of stocks are placed via stockbrokers. The stock broker is an individual who associated with a brokerage firm. Stockbroker buys and sells stocks for both retail and individual clients through stock exchanges. The broker usually offers market research, analysis of a stock market, opinions, and expert advice to the client. Stockbroker holds the degree in finance or degree in business administration.

To trade in share market, the trader should be aware of the live price of the stock. Initially, this price was obtained via ticker tape. Ticker tape was a large ribbon of a paper on which stock prices were printed. This is the reason we refer stock prices as a stock ticker.

A stock quote contains the essential information required to place an order in a live market. This quote contains the live price of a price at which transactions are going on. The stock quote gives information about the current bid price. The current bid price is the highest price at which someone is ready to buy the stock. Whereas offer price is the lowest price at which someone in the market wishes to sell Stock.

Stock quote contains stock information by their symbol. This symbol usually contains three to four capital words. Example, Hero Motocorp Ltd is referred by HEROMOTOCO. The stock quote usually contains chart which represents s stock historical stock price. The stock quote also gives last traded value of a stock including fifty-two weeks high value and fifty-two weeks the low value of a stock.

Traders place their orders in share market by filling market orders. The market order is a simple order which instructs the broker to place trader orders i.e. buying and selling the share at the available price for particular equity. A market order does not give a guarantee to the fulfillment of an order placed by trader until and unless it matches the market trend.

Traders can place a limit order via order book. Let’s take an example, trader wishes to buy 200 quantity of a heromoto corp share at 3,729 whose market value is 3,729.50 then the trader can buy only 100 quantity of a share offered at 3,729 prices. For remaining quantity, traders need to wait until unless some other sellers come to market at expected down price.

Stop Order is another form of order in the stock market. Stop order is also named as the stop-loss order which will cover losses of a trader. Stop order will be triggered only when the stock reaches given price. Once the stock reaches to given price then order becomes a market order to execute.  Let’s take an example of a stop order, if the trader is buying hero motocorp share at 3,729 and he placed sell order with price 3850 then in this scenario his order will get executed only when the stock reaches to the given price.

Margin trading is another form of trading which is present in the stock market. Usually in Margin trading stock broker facilitates its client to borrow money to buy shares in the excess amount of cash. Margin trading is facilitated by multiple brokers. Brokers attract new customer and their existing clients by offering margin trading.

Short selling is a type of order usually trader execute in the live market hoping stock price will drastically go down. Let’s take an example Current stock price of hero motocorp share is 3,729 rs/- and  Shyamlala expecting to see the price at 3650. In this situation, shyamlala will place an order to sell hero motocorp shares at the current market price. Later on, when hero motocorp share price goes down Shyamlala will purchase share again to complete short selling order.

Stock Exchange Trading

Stock trading on Stock Exchange

Once the owner of the company announces initial public offer (IPO), then that stock becomes available on the stock exchange. The stock exchange is a place where buyers and sellers of the stock meet and decide at what price they need to trade particular stock.

At initial days stock exchanges were a physical venue, where people gather together and decide buy or sell on the particular stock. Nowadays stock trading happens virtually where traders gather together on the virtual platform of computers and networks and place there trade. This trading then recorded electronically.

The stock market is a secondary market where buyers and sellers trade on the stock, owners of the shares can transact with market buyers. The company owner cannot trade in the market with their own stocks, it is restricted. They can do this outside the work frame of stock exchanges in terms of shares buyback. When traders place stock buying order, he does not buy directly from the company. Vice versa when trader put sell order of the stock he is not selling his current holdings directly to the company. This buying and selling transactions usually place in between buyers and sellers of the existing stockholders.

Let’s take an example to understand, Shyamlala bought 100 shares of Hero Honda Company two months back. The stock price increased by 100 rs /- in the one-month time frame. Now Shyamlala wants to sell their holding at the good profit, in stock selling situation he does not sell his shares to the company directly. He can sell his shares to the buyer of that stock, who is expecting price hike and wish to buy Hero Honda stock.

Initially, stock exchanges were mainly in port cities or inside trading hubs such as Amsterdam, and London. In late around 18th-century stock market beginning takes place in America. New York stock exchange is the notable stock market in America and World. New York stock exchange started by a signing an agreement with 25 stockbrokers.

The trader can rely on modern stock market exchanges as their transaction is going through the fir valuation in the age of regulations. Now day’s number of stock exchanges appeared in the world, many of them electronically linked together.

Now the question arises on stock prices. The price can be decided in many different ways. Usually, the stock price is set by a common buyers and sellers bid price. A bid price is the price at users wishes to buy their stock. Vice versa offer price is the price at which somebody wishes to sell their stock.

Many investors and traders concern belong to the indices also known as indexes. Indexes are formed by multiple stock price aggregation. This aggregation relies upon each individual stock price. When people discuss stock market they usually talk on indices such as Sensex, Nifty, and Nifty 50 etc.

The S & P BSE Sensex also called Sensex, full form is S& P Bombay stock exchange sensitive index or BSE 30. Sensex 30 contains well known established and financially strong companies. Sensex is a pulse of Indian stock market as it contains high valuation and most traded companies on which Indian economy relies. The full market capitalization of S&P BSE Sensex is around 55 thousand billion dollar. Whereas NSE (National Stock Exchange) Nifty is India’s benchmark stock market. NIFT 50 encapsulates top 50 companies, which are well established by their business, trust, and financial growth. NIFTY 50 is a pulse of Indian stock market.

How Stock Market works

How does Stock Market work in real life?

The stock market is all about buying and selling shares. Shares of different companies where investor do study perform an investigation on company’s core business, financial data and all.

If an investor is interested in buying and selling stock in any publically traded company then they most likely need service of a brokerage firm. However, an investor can directly execute his trades but to do so he should be legally licensed, to do so. There is multiple legal approach and problems exist. The investor can’t sell his securities directly to the public unless and until the investor is licensed to do so.

To avoid any boring process of getting the license and any legal problems, investors always prefer to place an order via the trusted source. These trusted sources are stock dealers who are licensed to execute investor’s trade. These stock dealers are act as an agent who will buy or sell shares for traders and investors.

Most of the trades are placed via stock exchanges. These stock exchanges simply allow their clients to place buying or selling order. Stock exchanges are special markets where buyer and sellers gathered together to execute their security trades. The best known stock exchanges in the world are NYSE, NASDAQ, LSE, TYO, NSE, BSE etc.

When people think about the stock market, suddenly they a strange picture pop ups in their mind with crowd people are struggling for their positions, shouting on each others, making funny hand actions and writing stock scripts on a piece of paper which they are holding since a long time. However, it’s a methodical and organized system of trading, where stock prices are clearly defined by supply and demand rules only.

Investor who regularly performs trading the phenomena is quite simple and straight forward to him. Investors usually prefers to hire full time stock broker, they place their stock trade via them by simply calling them. Let’s take an example, William is a stock investor. One morning he wake up and based on his stock analysis and investigation which he did in last night on companies core business, financial data, balance sheet. He decides to place an order of buy order of shares for company apple. He will simply make a call to the stock broker and he will ask them to place an order for apple company shares for 500 quantities. On very next couple of minutes Williams receive the message on his mobile stating he is a new owner of apple’s stock, the order has been executed successfully.

Once investor do a phone call to buy 500 shares of Apple Company. Then what happened behind the scene?

Show chart or sticker workflow

  1. First of all, the investor will call to the stock broker to place his order for 500 shares of apple company.
  2. Then broker will forward investor request to firms order confirmation department.
  3. Then order request forwarded to the stock exchange to execute this trade.
  4. Then this call transfer to the trader who is working on the same floor.
  5. Then trader calls to the specialist to search for the seller who is willing sell their stock holding.
  6. Specialist found Michael who is more interested to sell his current holding of apple shares
  7. Then specialist discusses with Michael on the price, and if trader agrees on a price then order gets executed.
  8. This order confirmation then forwarded to investor William who placed an order via phone call.
  9. Now William will receive the message on his cell phone stating that he is a new owner apple Order has been executed successfully.

Now days trading does not  happen on the floor, as long as your connected to the world of internet you can place your order electronically.

What is Sensex & Nifty

Sensex and Nifty are the two main indexes in the Indian stock market. These indexes give an idea to investors and general audience where the market is heading towards. Sensex and Nifty are called as index basically this index encapsulates stocks within one single entity. Stocks collection and encapsulation is basically based on the category of the stock.

Sensex index contains top 30 companies stocks based on the valuation, financial data, and core business. The Sensex is basically related to the all major stocks listed at BSE Mumbai. Only financial sound companies and most active stocks are listed under Sensex. This index is also denoted as a BSE index. Whereas Nifty contains top 50 companies stocks based on the company’s core business, valuation, and profit. The Nifty is basically related to the all major stocks listed at NSE Delhi. This index is also denoted as NSE Nifty index.

BSE Sensex contains top 30 companies stocks, which means when BSE Sensex goes up it means most of the stocks of the major companies listed within BSE Sensex goes up. If the Sensex goes down which means most of the stocks of the BSE Sensex goes down.

Similarly, Nifty contains top 50 companies stocks, which means when the Nifty index goes up then most of the stocks within the NSE Nifty index goes up.  Whereas when most of the stock goes down then NSE Nifty index goes down.

Apart from Sensex and Nifty, there are other indexes available. Midcap index is the index where all midcap companies stocks are listed under midcap indexes. Small cap index is the index where all small companies stocks are listed.

Also for all other sector indexes are categorized. Pharmacy sector, IT sector, banking sector have own indexes. Just by seeing the Current value of the indices one can say whether stocks of specific sectors going high or down.

What is Stock Market

We always see multiple organizations around the globe. A stock is nothing but an entity which is representing that company. Almost 90% big multinational companies have stocks which are listed on stock exchange. For example Microsoft, Google, Reliance, Tata group, HCL, Wipro, Tech Mahindra, Wipro, Aurobindo Pharma, Hero motocorp etc. Each stock has their own valuation based on current market rates user can buy the share at the low price and then he can sell at higher price.

The stock is a common word which we always heard when it comes to shares market. Stock can be defined as the stake in the company, the stock represents the company. When someone buys stock it means a person owns his share in the company. When someone buys shares of a company it means that person indirectly claiming to the earnings of the company. As the company grows, as companies profit grow bought share’s values gets increased and vice versa.

However, when a person buys the share of a company that means a person is buying his stake in the company. Purchasing of shares is limited to the growth and to the loss of the company’s profit. Buying share is limited to the corporation. The person who has purchased shares cannot own corporations. Company and stakeholders both cannot show ownership on each other’s assets.

If the person buys 10 percent shares of a company then that person cannot determine that he owns 10 percent stake in the company. Instead, that person can say he bought 10 percent shares of the company.

Let’s take an example, if Ramprasad buys 25 percent shares of Infosys then it doesn’t mean Ramprasad own one-fourth stake in the company. This statement is false and illegal to express. Instead, Ramprasad can say he purchased one-fourth shares of the Infosys.

So, purchasing stocks doesn’t mean to own company. Stockholder or stock purchase takes to buy some percentage shares. The stockholder can participate in shareholder meetings and votings. The maximum percentages of shares held by stockholder the more powerful he is in voting. Stockholder will be authorized to get companies profit in terms of dividend declared by companies in their board meetings.

The company usually raises their funds by listing stock in stock exchange. A shareholding is nothing but holding a certificate of a particular company. Certificate entitles person as a shareholder. Sometimes the owner of the company needs to invest in a new project within the company that times company owner needs capital. He can gain capital by reducing his holding in stock by selling his share on a stock exchange. This process is known as initial public offer i.e. IPO

When the company gets founded initially companies co-founder can be the only shareholders of that particular company. Let’s if new company has three founders and one investor then each of them will hold one-fourth of the company’s shares. However when the company starts growing then the company needs more funding to raise hence company raises IPO’s and the henceforth private company turns into the public company.

A stock price in the live market often fluctuates. Stock price fluctuation happens due to multiple reasons including demand and supply chain. Market experts often try to predict market mood by analyzing market fundamentals and by studying technical analysis.

Share price most of the time depends on the buyers and sellers ratio. When buyers outnumber the sellers then stock price rises. Eventually, when sellers outnumber the buyers and at the same time, buyers stops buying then stock price drastically falls.