What is a stock ?

A stock is a partial ownership in a company or an industry, with rights to share in its profits.
When an investor buys a stock of a company, he is called a shareholder or a stockholder of that
company. The benefit of buying a share is that when the company profits, the shareholders also
profit. The company distributes the profit among its shareholders, which is called the dividend.

How do you make profits with stocks ?

But many traders make real profit in stocks using the market price of the stocks. Stocks are
traded in the stock markets. The face value is the nominal value of the stock that is determined
by the issuer of the stock. Market price of a stock is the price at which currently a stock is
traded in the market. This price may be at premium or lesser than the face value of the stock,
depending on the companys performance and prospects, investors interests in the company and
a lot of other factors.
Market price of a stock keeps varying as traders trade the stock in the market. Traders often make
money using these variations in the market price of the stock. Stocks are bought at lower market
prices and sold at higher prices later. This is referred to as long positions in market terms.
Similarly stocks can be sold at a higher market price and bought at a lower price later. Thiis is
referred to as short positions in market terms. In these cases, the difference in the market prices
at the time of buying and selling will be seen as profit by the traders.

What is the Stock Market ?

Basically it is an exchange place or a market that facilitates the trading of stocks. People
participating in the stock markets range from some casual traders and investors who trade as a
hobby, to large fund traders.
In India the most famous exchanges or markets are the Bombay Stock Exchange(BSE) and the
National Stock Exchange (NSE). Globally there are many markets including the famous New
York Stock (NYSE), NASDAQ, London Stock Exchange, Hong Kong Stock Exchange etc..
Any market can be thought of with two functionalities:
Primary Market: Here the companies and industries raise long term funds for their operations
by issuing shares. Companies come up with an initial price, mostly with premium for the face

value of the shares, which will be distributed to the investors. This is called the Initial Public
Offer or the IPO.
Secondary Market : After a Company has finished its IPO, it is listed in the markets. After
getting listed and issued shares to investors, the shares can then be sold to other investors in the
stockmarket. Here the people can buy the shares at a current price as determined by other
investors in the market.

What is the Demat Account ?

Like opening a bank account for doing your personal financial transactions, you have to open a
Demat account to trade in the stock market. Demat account refers to Dematerialized account.
This account helps you to buy and sell stocks without the need for physical paper shares.
A Demat Account is a must for trading the stocks these days. To open a demat account, you
should select a Depository Participant (DP). These days most of the banks are also DPs. So you
can contact any of the DPs with your identity, address proof and PAN documents for opening a
demat account for a prescribed fee by the DP. The registered DPs are also listed in NSDL
(http://www.nsdl.co.in/) and CDSL (http://www.cdslindia.com/) websites.

Who is the Stock Broker ?

Stock Brokers are members of the Stock Exchanges. Only these members can conduct
transactions in the exchange on behalf of the individuals and companies. So if you want to buy or
sell shares in the exchange, you have to contact a stock broker for doing so. This normally
requires the individuals to open an account with the Stock Broker. So the individual becomes a
client for the stock broker.
Once the client wishes to buy a stock, the broker would place the order in the stock exchange on
behalf of the client. When the transaction is done, the broker places the price to the client. The
client pays for the stocks he bought and the broker transfers the stocks into the demat account of
the client by following the transaction and settlement procedures.
How do I Buy / Sell Stocks with my Online Account ?
Buying or Selling stocks is done by placing Orders. You can place a Buy Order to buy the
stocks at a particular price. Similarly to sell a stock at a particular price, you have to place a Sell
Order.

Each Online platform has different ways to place these orders. But generally, all of these provide
the following basic options when placing an order:

Option to choose whether you wish to Buy or Sell a particular stock

The name / symbol of the particular stock which you want to either Buy or Sell

The Number of stocks (Quantity) that you want to either Buy or Sell

The Price at which you would like to either Buy or Sell this stock.

After you have confirmed the order, it is placed in the Stock Exchange through the Online
System. Your stocks are actually bought or sold once this order gets executed in the exchange.

What is a Limit Order / Limit Price ?

A Limit Order is a Buy / Sell order which you want to get executed at a pre-determined desired
price. This is the most common type of order that investors and traders place in the market.
Buy Order with Limit Price
For example, if you want to buy the stocks of company A at a price of Rs.300. However the
current price of the stock might be higher than your desired price. But you feel that the price of
this stock would come down sooner and reach Rs. 300. In such a case, you can place a Buy order
with a limit price of Rs. 300. This means that you are instructing the system to buy the stocks of
company A, only if the price reaches Rs. 300 or lesser.
So if a Buy Order gets executed with the Limit Price specified, then you could be assured that
the actual price at which the stocks are purchased by you will always be either equal to or lesser
than the Limit Price specified by you.
Sell Order with Limit Price
Similarly you may have the stocks of company B in your demat account, which you would like
to sell at a price of Rs.500. But currently the market price of the stock is lesser than 500 and you
expect that sooner the price will reach Rs. 500. In such a case you can place a Sell order with a
limit price set to Rs. 500. In this case, the stocks will be sold only if the price reaches Rs.500 or
above.
So if a Sell Order gets executed with the Limit Price specified, then you could be assured that the
actual price at which the stocks are sold by you will always be either equal to or greater than the
Limit Price specified by you.

What is a Market Order ?

Market Orders are placed, when you are not concerned too much about the current price of the
stock, but you want to get assured that the stocks are either bought or sold immediately. So a
Market Order can be placed only during the Market Trading Hours. You cannot place a Market
Order when the Markets are closed.
Market Order for Buying
For example, consider an instance where in you know the fact that company A will be making a
big announcement in the afternoon today and so the price of the stocks of this company will
definitely rise after this event. So you are looking for buying this stock desperately now,
irrespective of its current traded price. In such a case, you can place a market order for this
stock. This will place an order for buying the stocks at the Last Traded Price in the Stock Market.
So the chances of buying the stocks increase, as you are trying to buy the stock very close to its
Last Traded Price in the market.
Market Order for Selling
Similarly suppose that you know the price of stocks of company B will go down later in the day
when the company comes out with its Earnings report of Losses for the Quarter. So you would
want to sell the stocks of this company immediately, before the price of the stocks fall drastically.
In such a case, you can place a Market Order for Selling. This will place an order for selling the
stocks at the Last Traded Price in the Stock Market. So the chances of selling the stocks increase,
as you are trying to sell the stock very close to its Last Traded Price in the market.
What is Technical Analysis ?
Technical Analysis (TA) is one of the methods used to predict the movement of the price of a
stock or an index in the future. The prediction is derived based on a careful analysis of the
previous price movements of the stock or index. To put is simply, the future trend is derived
based on the past movements of the stock.
Technical Analysis does not yield absolute results always. As is the case with any forecasting
system, the TA can give you a hint on what might be expected. But the expectations might prove
to be false in extreme market conditions.
So TA will not help you totally overcome the risks involved in the markets, but if used properly,
it can help you to predict and take precautionary measures to a large extent.

What are Charts ? Why do we need them ?

Charts are graphical representations of the movement of the stock price or the index value, over a
period of time. Along with the price or value, the charts can also be used to depict other related
indicators such as the Volume or total traded quantity of stocks. Based on the stock prices or
values, statistical indicators are used to obtain values, which can also be plotted on the charts.
Charts offer a very convenient way to visually analyze the movement of the stock price or value.
Rising and Falling trends can be easily found out looking at the charts. Repeating Visual Patterns
in the charts are also used to forecast the movement. Charts can also be used to spot and trace the
effect of key events in the history of the price of the stock.

How are Charts Plotted ?

Financial Charts are generally 2D Charts. There are of course 3D and other higher dimensional
charts used in advanced analysis.
The X-axis (Horizontal axis) is generally used to depict the Time Frame. The Y-Axis (Vertical
Axis) is used to depict the price or the value that varies with time.

What are Technical Indicators ?

Technical Analysts often rely on some Statistical and Mathematical functions that are applied on
the price or value of the stock. These are generally called as Technical Indicators . The resultant
values, after applying these functions to the price of the stock, are again plotted on the Chart.
Analysts can get further hints from analyzing the movement of these indicator values.
There is no consensus or a prescribed set of indicators that have to be used. Each Technical
Analyst uses a custom set of these indicators depending upon his / her Trading strategy.
Some of the most commonly used indicators include Relative Strength Index (RSI), Moving
Averages (MA), Moving Average Convergence Divergence (MACD) and others.