Basics of Stock Market

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, whichis called the µdividendµ.

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. µMarket priceµ 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 µface value¶ of the stock, depending on the company¶s 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 ofen t 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 µlongµ 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 µshortµ 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

What is the Demat Account ? Like opening a bank account for doing your personal financial transactions. Demat account refers to Dematerialized account. you ha to open ve a Demat account to trade in the stock market. you have to place a µSell Orderµ. . To open a demat account. Secondary Market : After a Company has finished its IPO.for the face value of the shares. When the transaction is done. This normally requires the individuals to open an account with the Stock Broker. The registered DPs are also listed in NSDL (http://www.co. Who is the Stock Broker ? Stock Brokers are members of the Stock Exchanges. Here the people can buy the shares at a current price as determinedby other investors in the market. 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. A Demat Account is a must for trading the stocks these days. the broker would place the order in the stock exchange on behalf of the client.com/) websites. address proof and PAN documents for opening a demat account for a prescribed fee by the DP. These days most of the banks are also DPs. You can place a µBuy Orderµ to buy the stocks at a particular price. So if you want to buy or sell shares in the exchange. Once the client wishes to buy a stock. After getting listed and issued shares to investors.nsdl. BASICS OF ONLINE TRADING How do I Buy / Sell Stocks with my Online Account ? Buying or Selling stocks is done by placing µOrdersµ.cdslindia. which will be distributed to the investors. So the individual becomes a client for the stock broker. So you can contact any of the DPs with your identity. Only these members can conduct transactions in the exchange on behalf of the individuals and companies.in/) and CDSL (http://www. it is listed in the markets. you should select a Depository Participant (DP). you have to contact a stock broker for doingso. This is called the Initial Public Offer or the IPO. This account helps you to buy and sell stocks without the need for physical paper shares. the broker places the price to the client. the shares can then be sold to other investors in the stockmarket. Similarly to sell a stock at a particular price.

This means that you are instructing the system to buy the stocks of company A. In this case. 300 or lesser. Your stocks are actually bought or sold once this order gets executed in the exchange.500 or above.300. it is placed in the Stock Exchange through the Online System. if you want to buy the stocks of company µA¶ at a price of Rs. 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. 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. But currently the market price of the stock is lesser than 500 and you expect that sooner the price will reach Rs. 300. In such a case you can place a Sell order with a limit price set to Rs. Buy Order with Limit Price For example.Each Online platform has different ways to place these orders. After you have confirmed the order. But you feel that the price of this stock would come down sooner and reach Rs. 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. But generally. . 500.500. 500. all of these provide the following basic options when placing an order: y y y y 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. However the current price of the stock might be higher than your desired price. So if a Buy Order gets executed with the Limit Price specified. you can place a Buy order with a limit price of Rs. 300. So if a Sell Order gets executed with the Limit Price specified. only if the price reaches Rs. In such a case. which you would like to sell at a price of Rs. the stocks will be sold only if the price reaches Rs. Sell Order with Limit Price Similarly you may have the stocks of company µB¶ in your demat account.

This will place an order for selling the stocks at the Last Traded Price in the Stock Market. you can place a Market Order for Selling. So the chances of buying the stocks increase. So you are looking for buying this stock desperately now. Market Order for Buying For example. So you would want to sell the stocks of this company immediately. Market Order for Selling Similarly suppose that you know the price of stocks of company µB¶ will go down later in the day when the company comes out with its Earnings report of Losses for the Quarter. In such a case. In such a case. So a Market Order can be placed only during the Market Trading Hours. consider an instance where in you know the fact that company µA¶ will be making a big announcement in the afternoon tod ay and so the price of the stocks of this company will definitely rise after this event. when you are not concerned too much about the current price of the stock. This will place an order for buying the stocks at the Last Traded Price in the Stock Market.What i a Market Order ? Market Orders are placed. You cannot place a Market Order when the Markets are closed. as you are trying to buy the stock very close to its Last Traded Price in the market. you can place a µmarket order¶ for this stock. irrespective of its current traded price. as you are trying to sell the st ock very close to its Last Traded Price in the market. but you want to get assured that the stocks are either bought or sold immediatel . So the chances of selling the stocks increase.   . before the price of the stocks fall drastically.

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