Here is a brief description about stock market , stocks and their types. Also there is a brief description about trading in stocks and its types and also how to invest in the stocks depending on the analysis of the stocks.
2. WHAT IS STOCK MARKET?
Stock market/equity market is the aggregation of buyers and sellers or we
can say that it is a loose network of economic transactions of stocks .
It is a place where individuals and organizations can trade stocks. Many large
companies have their stock listed on the stock market. Thus,it attracts the
investors to invest in the shares/equity of the company.
The stocks may be traded over-the-counter(OTC) , through a dealer.
3. Types of Stock Market
There are two types of stock markets –
1. Primary Market
This is the first group of investors to whom a new issue of a security is
sold. The market consists of the first buyers and the issuers.
2. Secondary Market
This is a market where investors purchase shares from other investors
rather than from the issuing companies themselves.
4. WHAT IS A STOCK/SHARE/EQUITY?
A share is one of the equal parts into which a company’s capital is divided,
entitling the holder to a proportion of the profits.
The ownership of the stocks can be seen in an account which is known as
Demat or Dematerialized account. This account holds the shares and
securities in an electronic format, thus facilitating easy trade for the users. A
Demat account holds the investments an individual makes in shares,
government securities, exchange traded funds, bonds and mutual funds in one
place.
5. Types of stocks
1. Blue chips
They carry the highest value. They are issued by very solid and reliable
companies.
2. Income stocks
These are the stocks where dividends are high , but the share prices
don’t rise quickly.
3. Growth stocks
These stocks are often overvalued and pay little or no dividends , but
can rise very quickly.
6. 4. Cyclical Stocks
The prices of the stocks can go down during recessionary periods. They
grow during economic booms.
5. Defensive conditions
These stocks are issued by companies relatively unmoved by economic
conditions.
7. WHO IS A SHAREHOLDER?
A shareholder is an individual or a company that the legally owns the shares
of one or more companies and thus gets a part of the company’s profit.
He has certain rights such as right to buy and sell the shares of a company ,
right to vote on matters such as elections to the board of directors. He also
has the right to attend the corporation’s annual meeting to learn about the
company’s performance.
8. WHO IS A STOCKBROKER?
A stockbroker is a person who is licensed to trade in shares.
The brokers have access to the shares and also can act as one’s agent in share
transactions.
For this work , they charge a fee.
9. Trading in stock market
Trading in stock market means transfer of money from seller to buyer. This
requires both parties to agree on a price.
Also , the buyer can buy the shares of any company on its price at that
particular time.
Here ,the prices of the shares of the companies can either increase or
decrease. It depends on the market forces i.e it changes because of supply
and demand. If more people want to buy (demand) a stock than sell it , then
the prices move up . If more people want to sell a stock than buy it , there
would be greater supply than demand , and the price would fall.
10. Types of Trading
There are two types of trading in the stock markets
1. Intra-Day Trading
2. Delivery Based Trading
11. Intra-Day Trading
It consists of buying and selling the shares of a company or government
securities on the same day.
Here the brokerage or the fee of the broker will be lesser than Delivery Based
Trading.
12. Delivery Based Trading
It consists of buying and selling of the shares of the company or government
securities on different days.
Brokerage or the fee of the broker is higher than the Intra-Day Trading.
13. STOCK MARKET CONDITIONS
There a two types of market conditions –
1. Bull market
It indicates that there is a continuous upward movement of the stock
market. A stock that seems to be increasing in value is described as bullish.
2. Bear market
It indicates that there is a continuous downward movement of the stock
market. A stock that seems to be decreasing in value is described as bearish.
14. How to select stocks?
We can select stocks by analyzing them by two methods
1. Fundamental Analysis
2. Technical Analysis
15. Fundamental Analysis
Here , we analyze the stocks based on the fundamentals of the country , the
sector and the company individually.
It includes going through the profit – loss statements of the individual
company and checking various ratios.
Example – Enron , Satyam
16. Technical Analysis
Here , It includes forecasting the future direction of prices , through the
study of past market data, primarily price and volume.
It considers only the actual price and volume of the market.
17. Examples of various stock exchanges
1. National Stock Exchange(NSE)
2. Bombay Stock Exchange(BSE)
3. New York Stock Exchange(NYSE)
4. London Stock Exchange(LSE)
5. Indonesia Stock Exchange(ISE)
6. Singapore Exchange Limited(SEL)