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Basics Of Stock Market: All You Need To Know.

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basics of stock market

Investment & Need of Investment: Basics Of Stock Market

The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment. we would also learn about the basics of the stock market in this article ahead.

One needs to invest to:

  • Earn return on your idle resources
  • Generate a specified sum of money for a specific goal in life
  • Make a provision for an uncertain future

When to Start Investing?

The sooner one starts investing the better. By investing early you allow your investments more time to grow, increases your income, by accumulating the principal and the interest or dividend earned on it, year after year.

The three golden rules for all investors are:

  • Invest early
  • Invest regularly
  • Invest for long term and not short term
Basics Of Stock Market

Where to Invest?

One may invest in:

  • Physical assets like real estate, gold/jewellery, commodities etc
  • Financial assets such as fixed deposits with banks, small saving instruments with post offices, insurance/provident/pension fund etc or securities market related instruments like shares, bonds, debentures etc.

Short & Long Term Options:

For Investment, Short Term:

  • Savings Bank Account
  • Money Market or Liquid Funds
  • Fixed Deposit with Banks

Long Term:

  • Post Office Savings
  • Public Provident Fund
  • Bonds
  • Mutual Fund

Before investing, It is always wise to learn the Basics of Stock Market. We have compiled articles and tutorials on the Share Market Basics. Also included here explanation of Stock Market Terms and jargon used by people involved in trading stocks and shares. Whether it is Bombay Stock Exchange (BSE), National Stock Exchange (NSE), London Stock Exchange (LSE) or New York Stock Exchange (NYSE), trading terms or more or less similar

Before investing, it is always wise to learn the Basics of Stock Market. We have compiled articles and tutorials on the Share Market Basics. Also included here explanation of Stock Market Terms and jargon used by people involved in trading stocks and shares. Whether it is Bombay Stock Exchange (BSE), National Stock Exchange (NSE), London Stock Exchange (LSE) or New York Stock Exchange (NYSE), trading terms or more or less similar

Why Trade In Stock Market?

  • You do not need a lot of money to start making money, unlike buying property and paying a monthly mortgage.
  • It requires very minimal time to trade – unlike building a conventional business
  • It’s ‘fast’ cash and allows for quick liquidation (You can convert it to cash easily, unlike selling a property or a business).
  • It’s easy to learn how to profit from the stock market.

But You need to have your basics clear. Unless you do….you will be wasting your time and loosing money. You need to be crystal clear of each and every aspect of Investments, stock options, Stock Trading, Company, Shares, Dividend & Types of Shares, Debentures, Securities, Mutual Funds, IPO, Futures & Options, What does the Share Market consist of? Exchanges, Indices, SEBI , Analysis of Stocks – How to check on what to buy?, Trading Terms (Limit Order, Stop Loss, Put, Call, Booking Profit & Loss, Short & Long), Trading Options – Brokerage Houses etc.

Basics Of Stock Market

Stock Market System

  • Primary market
  • Stock market is a secondary market
  • Trade stock for listed corporations
  • Progressive development of stock market

Primary Market

• The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporate to raise resources to meet their requirements of investment and/or discharge some obligation.

• They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market

Why Companies need to issue shares to Public

• Most companies are usually started privately by their promoter(s). However, the promoters’ capital and the borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity and issue shares to individual investors.

• The way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations laid down by SEBI.

Secondary Market

• Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets

Difference between Primary and Secondary Market:

  • In Primary Market securities are offered to public for subscription for the purpose of raising capital or fund Secondary Market is an equity trading venue in which already existing/pre-issued securities are traded among investors.
Difference between Primary and Secondary Market

Equity Investment

When you buy a share of a company you become a shareholder in that company. Shares are also known as Equities. Equities have the potential to increase in value over time. It also provides your portfolio with the growth necessary to reach your long term investment goals. Research studies have proved that the equities have outperformed most other forms of investments in the long term.

• Research studies have proved that investments in some shares with a longer tenure of investment have yielded far superior returns than any other investment.

• However, this does not mean all equity investments would guarantee similar high returns. Equities are high risk investments. One needs to study them carefully before investing

Types of Investors

  • Speculators:

“A speculator utilizes strategies and typically a shorter time frame in an attempt to outperform traditional longer-term investors. Speculators take on risk, especially with respect to anticipating future price movements, in the hope of making gains that are large enough to offset the risk.

Speculators that take on excessive risk typically don’t last long. Speculators exert control over long-term risks by employing various strategies such as position sizingstop loss orders, and monitoring the statistics of their trading performance. Speculators are typically sophisticated risk-taking individuals with expertise in the markets in which they are trading.” 

Quotes Investopedia!
  • Hedgers:

“An investor who takes steps to reduce the risk of an investment by making an offsetting investment. There are a large number of hedgingstrategies that a hedger can use. Hedgers may reduce risk, but in doing so they also reduce their profit potential.”

Quotes Financial Story
  • Arbitragers

“An arbitrageur is a type of investor who attempts to profit from market inefficiencies. These inefficiencies can relate to any aspect of the markets, whether it is price, dividends, or regulation. The most common form of arbitrage is price.

Arbitrageurs exploit price inefficiencies by making simultaneous trades that offset each other to capture risk-free profits. An arbitrageur would, for example, seek out price discrepancies between stocks listed on more than one exchange by buying the undervalued shares on one exchange while short selling the same number of overvalued shares on another exchange, thus capturing risk-free profits as the prices on the two exchanges converge.

In some instances, they also seek to profit by arbitraging private information into profits. For example, a takeover arbitrageur may use information about an impending takeover to buy up a company’s stock and profit from the subsequent price appreciation.”

Quotes Investopedia!
Types of Investors

Conclusion

In conclusion, the stock market is a complex system with a lot of moving parts. However, there are some basic concepts that all investors should understand.

These include the role of the stock exchange, the different types of securities, and the different types of orders. By understanding these basics, investors can be better equipped to make informed investment decisions. For more informative content like this, be sure to follow InveShares. And as always, Do share it among your friends to let them know more about stock market and investments.

Important Jargons

  • BSE Sensitive Index or SENSEX: Sensex is the benchmark index of the BSE in India. It was launched on January 1, 1986 as a basket of 30 shares representing the country’s largest, financially-sound companies listed at the BSE. The term ‘Sensex’ is a blend of phrases ‘sensitive’ and ‘Index’ and was coined by stock market expert Deepak Mohini.
  •  Bull Market: A bull market takes place when securities are at the rise, even as a bear marketplace occurs when securities fall for a sustained period of time. it’s crucial to recognize the differences between bull and bear markets and the way they effect your investment selections.
  •  Bear Market: A bear marketplace takes place when a marketplace experiences prolonged price declines. “It usually describes a condition wherein securities prices fall 20% or more from recent highs amid large pessimism and bad investor sentiment,” writes Investopedia.
  •  Delivery
  •  Intraday
  •  Dematerialization
  •  Long Buy
  •  Short Selling
  •  Stop Loss
  •  Portfolio
  •  Tick Size
  •  Averaging
  •  Booking Profit or Loss
  •  Crash – Curciuts
  • Right Issue
  •  Stock bonus
  •  Stock Split
  • SNP CNX NIFTY 50
  • Nifty CNX 100
  • Nifty Junior
  • Future Index
  • Future Contract
  • Margin
  • Premium
  • Discount
  • Market lot
  • Roll over
  • Options
  • Call
  • Put
  • Long Positions
  • Short positions
  • Expiry

Do follow other articles to know more about other Jargaons here.

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