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  1. 1. 0 Contents N0 Name Contents Page 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 20 21 22 23 24 24 25 26 27 28 29 30 I. stock market 1. Definition 2. What is Stock? 3. What is stock market? II. Types of Stock Market  Primary Market  Secondary Market 1. How stock market works 2. How does stock price change 3. Why companies issue stock 4. Value of company & Stock price III. How many types of stocks 1. Types of stocks has three  Preferred Stock:  Common stock:  Earnings in stock 2.How to know current price of stock 3.Pros & Cons of investment in stocks 4.How to buy stock o Limit order o Market Order 5.Which stock to buy IV. Understanding Risk in stock market 1. Know your financial position 2. Fees & Taxes in Stock trading 3. Your rights as a stock holder 4. Your rights as a stock holder 5. Initial Public Offering (IPO) 6. Should you go for IPO 7. How to start investing in stock market 8. The following 10 steps you can take for starting Investing in stock market. 01 01 01 01 01 02 02 02 02 02 03 03 03 03 03 03 04 04 04 04 05 05 05 05 05 06 06 07 07 07 07
  2. 2. 1 I. stock market 1.Definition a place where shares are bought and sold, i.e. a stock exchange Example: stock market price or price on the stock market 2.What is Stock? Answer: Some portion of the company sold to public is called stock. If a company has 200,000 stocks outstanding means the company has been divided into 200,000 units and different people own some units. These units are called stocks. When you purchase stocks, or equities, you become a partial owner of the business. This entitles you to vote at the shareholders' meeting and allows you to receive any profits that the company allocates to its owners. These profits are referred as dividends. 3.What is stock market? Answers: What is a market? It is common place where supplier and buyer meet. Supplier sales product and buyers buy paying money. Likewise there is a market where sellers are selling stocks and buyers are buying. It is called stock market. Little confused, right ? Ok. Some people own stock of a company. Some people want to buy it and the owner also wants to sell it. At common platform they meet each other and exchange the stock ownership with money. This is stock market. Earlier, even now also in some places stocks are being traded in an Office like any other shop. It is called Floor trading. You have to go there give money and get the stock certificate. This stock certificate is proof of your ownership. You have to transfer the certificate when you sell your stock. This trading platform is called stock exchange. You would be finding difficult to imagine going for floor trading in such electronic age. Yes, Computer and Internet has brought the trading floor to your desk. Now you can buy or sell stock right from your computer. Now stock market is an electronic market where you can buy or sell stock. It is called online trading. Organization providing platform for this market they are designated as stock broker. We will go in detail about stock broker in subsequent chapters. II. Types of Stock Market Now you might be thinking about types of stock market. Well. Basically there are two types of market.
  3. 3. 2  Primary Market Now we are talking about buying and selling stock. We know that companies are issuing stocks. Some people will be there who bought the stock first time and then selling and buying process is going. The first stock which companies issue to the investors is called Initial Public Offering (IPO). IPO market is called Primary market. It is almost same as later one. We will go in detail about IPO in subsequent chapters.  Secondary Market Whatever we have explained above as stock market is secondary market only. Here buying and selling process goes on for the pre-owned stock. Someone talking about stock market means it is secondary market. 1.How stock market works As explained above stocks are trade in stock market. On floor or in exchanges. Stock exchange act as a market place for trading stock through broker. You can buy or sell stock using your broker website. You can see the offer price and bid price for any stock in your broke website or any application given by your broker. There are many third party applications also facilitating this. There are two major stock exchanges in India. i.e. Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Any company has to be listed in one or more the exchanges before issuing stock. 2.How does stock price change It is very interesting to see stock price changing. But how it changes? Similar to any other products, Supply and demand makes stock price to change. No of shares is limited. Hence, if one stock has more demand to buy then stock price will go up, similarly if one stock has more demand to sell then stock price will fall down. It sounds easy. But the difficult thing is to predict that when the stock price is going to up or fall. Knowing this only you will make buy or sell decision. Many people say that no one knows when stock price will change and some people say that by reading historical data or by drawing some chart it can be predicted to some extent. 3.Why companies issue stock Now that you learned about stock and stock market. But why companies issue stock? Why they are giving ownership to you? Obviously they are gaining something. At some point of time every company need to raise money. They can get money from two sources, either by debt financing or by equity financing. Debt financing is getting the money from Bank as loan or by issuing bond. In this, the company has paid back the money with a defined amount of interest. In equity financing companies raise money by issuing stock. It advantageous for company because company need not payback the money or needn't to pay any fix interest. All that investor will gain
  4. 4. 3 is dividend and/or appreciation value of stock. Appreciation value means increase in stock price from the purchase price. 4.Value of company & Stock price It is important to understand the difference between value of company and stock price. If one company's stock price is low that doesn't mean the company is small company. Let one company X's stock price is Rs 400.00 and another company Y's stock is Rs 1700.00 which company is bigger? You may be thinking company Y. It is not true. Stock price of a company doesn't give net worth of company. What gives value of the company is Market Capitalization. Market capitalization is the multiplication of Stock price with No of shares outstanding. We will tell you later where from get these data. If no of shares outstanding for X are 2000000 and for Y are 300000, then Market capitalization of X is Rs 80, 00, 00,000.00 and Y is 51, 00, and 00,000. So company X is has more value than Y. So be clear that market capitalization gives current value of company, not the stock price III. How many types of stocks 1. Types of stocks has three You know what stock is. Now you might be eager to know how many types of stocks are available. Well, there are primarily two types of stock.  Preferred Stock: It is stock with some guaranteed amount of dividend for ever. It gives some degree of ownership in the company but with lower voting right.  Common stock: It is the stock which is available for common people. Stock means Common stock unless specified. Whatever discussion we have made about stock is for common stock. In this type you will get ownership on the company with no guaranteed dividend. Investors get one vote per share to elect the board members, who oversee the major decisions made by management. In long run common stock give very high return by growth of value of stock. This gain comes with high risk that company may lose everything if runs in loss for long time.  Earnings in stock You can earn money from stock in two ways, First, Appreciation value of stock: It is the increase in price of stock over time than purchase price. If stock price rises from the purchase price, then you can sell at higher price and earn the
  5. 5. 4 profit. Say for example, you have purchased stock of a company at Rs 1000.00, after 2 months it became Rs 1200.00 and you sold it at Rs 1200.00, then you earned Rs 200.00, i.e. 16%. Some taxes are also will be deducted. Second one is, Dividend: Some companies, not all, Shares some percentage of their profit as Dividends. Companies may pay or not, there no guarantee or there no obligation that a company has to pay dividend. Mostly earnings are expected from appreciation value of stock. It fluctuates very high to both up and down side. 2.How to know current price of stock Many websites are providing stock price along with huge technical details. If you see right side of this page "Get Stock Price" area, Write company name in the search box and press get quote. You will get current price. For further technical details you can browse, www.dailyfinane.com, they have huge financial information about many companies. There are many other sites like www.moneycontrol.com, www.moneycentral.com etc. You mayn’t understand some terms like, Share Holding pattern, 52week high low, Market capitalization etc. Don't worry leave it as it is, we will come back to these terms in subsequent sections. 3.Pros & Cons of investment in stocks Stocks are famous mainly due to the reason that they come with very high return. Mainly stocks assure the following advantages, 1. Very high return 2. You are getting ownership of a company with voting right. 3. Flexibility, You can buy and sell stocks at any time. As usual, high reward comes with greater risk. It is same for stocks also. Stocks encounter the following main disadvantages, 1. Very high risk of losing money. 2. Tax is higher 3. Broker commission and various fees are higher despite of these disadvantages, due to historically higher return stocks are one of the very good investment. 4.How to buy stock Buying a stock is only a click away. You can buy using your broker website or any application given by your broker. First of all you have to open a trading account with any broker. Then relate you bank account with trading account. Now visit your broker site. Transfer funds from saving bank account to trading account. In the site buying option will be there. In the option fill the details like, stock name, no of
  6. 6. 5 stocks, order type etc. Then place order. If it is a market order it will be executed immediately, if it is limit order then it may take some time or even may get canceled depending on market price, if limit price is not reached. o Market Order Your order will be executed immediately in market price of the stock. o Limit order Your order will be executed based on your specified limit price. Else it will be cancelled on closure of the market. After buying you stock details will appear in your account in your broker site. You can sell using sell form from the site. You can get familiar with this after opening trading or demat account. It is too easy. 5.Which stock to buy Ask your broker ! This is the best question for him…. There is no formula to choose stock. Knowing the technical and historical data you need to make some analysis. There are two types i.e. Technical and Fundamental analysis used to identify stock. But no analysis gives correct result to pick a stock. Analysis can help to make a best guess. In the subsequent chapter we will discuss about Technical and Fundamental analysis, how it can be used to select stock. Now, at this stage we suggest, you can go for your broker's suggestion. Your broker will suggest some stock to buy with back up details. Go through the back up details and make little research on the company's website to find the healthiness of company. If you feel that you should invest at that company then please go ahead. But don't invest too much amount without knowing how to analyze stock. For research you can invest little money. IV. Understanding Risk in stock market There is no guarantee on return when it comes to investment in stock. Some companies share their profit among investor regularly i.e. called dividend, where as many companies don't do it. It is not mandatory for the companies to pay dividends. Other way (Mostly used) of getting return is when stock value rises. It is not guaranteed that stock value will rise. It may fall to the very downside causing you to lose everything. Take example of Satyam Ltd. whose stock price fall down from Rs 180.00 to Rs 50.00 overnight. But these happenings are very rare. 1.Know your financial position Understanding your financial position determines you success!!
  7. 7. 6 Can you afford to lose all your money invested in market? If yes then you can go forward, on the other hand you rethink about your financial position. First of all make yourself stable, make your family protected from market declines and unfortunates. A 70 year old widow will be more conservative than a 30 yr executive who has a full time income except investment. Hence age and financial position drives your investment strategy. Invest the money which you can afford to lose. From the beginning, if you don't have experience or some degree in this stock market, then it is recommended that you make it as part time work. After you get confidence in investment you can take it as full time. Again, be debt free before investing. Don't invest money taken from loan. Because if you lose money invested then you may come to the road. Be careful! Always remember borrower is servant of lender. Avoid borrowing. 2.Fees & Taxes in Stock trading Most of the investors don't know how much fees and taxes they are paying. Fees and taxes vary from country to country, broker to broker and depend on type of stocks also. Your broker can give you a clear picture about taxes and fees they are taking. While opening demat account ask your broker executive details on taxes and fees applicable. Note it down. Keep a vigilant eye on transaction report for your entire buy and sell, see how much fees and taxes have been deducted. Taxes and fees are very high in stock trading. They kill you income. Specifically if you are investing less money. If your investment is higher fees and tax amount is reduced little bit. But remember to ask your broker about fees and taxes and keep an argus-eyed look on transaction report. 3.Your rights as a stock holder Many investors who buy securities are unaware of the rights that come with stock ownership. Your must know your rights as a stock holder. While specific rights depend on the type of security, the laws of the state/country where the company is incorporated, and the by-laws and charter of the company itself, some rights are standard. Investors who buy a share or shares of common or preferred stock are actually buying an equity or ownership interest in a company. The company's by-laws and charter set forth the rights of each class of stock holder. For example, a company's charter may state that only the common stock has voting privileges or that the preferred stock must receive dividends before any dividend is paid common stockholders. The state where the company is incorporated (it appears on the face of the certificate) also gives investors certain rights 4.Your rights as a stock holder Typically given in all states or countries are, (1) Vote on questions affecting the whole company. (2) Hold a proportionate ownership in the assets of the company. (3) Transfer ownership of their shares.
  8. 8. 7 (4) Receive dividends when declared by the board of directors. (5) Inspect the corporate books and records. (6) Sue the corporation for wrongful acts. And (7) Share in the proceeds of a corporate liquidation. In addition, most states also have laws about the kind of corporate information given to shareholders, and concerning the annual meetings of shareholders. While state/country laws concerning these requirements are fairly uniform, you should not assume that the laws of one state are identical to another state. You should look up the specific state laws that apply to the company. 5.Initial Public Offering (IPO) The first issue of stock to public is named as IPO. You understood that stock is a share of the company. You are purchasing it from someone who already owns it. If you go dipper, there will be someone who bought the stock first. From where did he get? Off course from the company. This first stock issued by company to public is called IPO or Initial Public Offering. Afterwards those who took the stock they will sell to someone again someone purchase it from him and game continues. If you are purchasing IPO means you are the first person to buy that company's stock. Then you will sell it, someone will buy, he will again sell and the market goes on. Companies issue IPO in order to accumulate capital for their business. 6.Should you go for IPO Return in IPO is generally very high and very low too. If the company takes market then you will be very rich. If you get IPO of good company you will earn few time of the money in few months or years. You can buy IPO from your broker by their website interface after opening demits account. Profit return in IPO sounds well hence everyone will try to buy, whom the company will give. They will not give individual investors like you and me, because we are not the targeted market, it is institutional investors who play the game and win the race. You will get if your broker allots something to you, this he will do if you are a regular investor. 7.How to start investing in stock market Enough things you have learned. Further details will be explained in subsequently articles. Now it's time to start. Once you start you will learn the practical things. Starting is strongest huddle in development. I saw a fantastic sentence in a Gymnasium center in Rourkela, India. "The best way to go ahead is to get started.“ Just start, the work will teach you how to do it. Remember, “Experience is the best teacher”. 8.The following 10 steps you can take for starting Investing in stock market. -1- Decide how much money you are going to invest. Is it one time or monthly or yearly or anytime? It is always suggested to invest consistently monthly basis or yearly basis .
  9. 9. 8 -2- Be sure that whatever money you are taking out for investment is not affecting your living and you are ready to lose it. You may not loose but it is better to go by boat even though you can swim. -3- Buy a computer with Internet connection if you want to be a good investor and want to make considerable income from stock market. It is not mandatory -4- Read some E books, Information available on different website, see information about different companies, acquire some knowledge in screening the stock or selecting the stock, find out a broker taking care of various features, be acquainted about use of MS Excel, Internet and MS word if you not . Take month time for these activities, don't be hurry. Remember, Knowledge is power. -5- Open a bank account with Internet banking and cheque book facility. -6- Open a demat account with the broker you have selected. Be clear about their fees & taxes. Opening demat account are free with many brokers. -7- Go for a first step class to your broker, if they are providing. Understand you broker's website interface for trading. If you have any doubt or confusion you can call to your broker and ask them. -8- Decide your investment strategy. That is, how much you want to invest in higher risk stocks, how much is lower risk stocks, how much in Mutual Fund etc. -9- Get stock recommendations from your broker. Normally they will mail you or you can get from their site after you login. Analyze a little bit about that stock and decide whether to buy or not. Your broker will give, which stock to buy, what is the buying price and what is the expected sell price, via newsletter or website. -10- Place order form the website interface provided by your broker and Buy. Remember: Keep eye on your stock price and market movement continuously and sell whenever it is favorable or you get recommendation from your broker. Note: In India, you can buy and sell stock in NSE & BSE till 3pm to 4pm depending on your broker. After 3pm BSE will be closed and no order will be accepted. However, NSE will be "after hour" and you can place order, your order will be executed as soon as market opens. Avoid giving market orders during after hours, because market may open at a lower price. Better to give limited order with limit price and stop loss. See below to know about Market order and limit order.
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