Stock Market
The stock market is an electronic market place. The traders and Investors buy and sell the shares of the listed company’s through the online trading systems provided by the stock exchanges. In India BSE and NSE are the leading Stock Exchanges. The Primary duty of The stock exchange has to create a market place for the buyer and seller.
The Trading
Example:
You have decided to buy 100 shares of Reliance at Rs.1000, and hold for one year. How does it actually work? What is the exact process to buy it? What happens after you buy it?
With your decision to buy shares you need have a DEMAT and Trading account. You can open this with any of the stock brokers. Then login to your trading account (provided by your stock broker) and place an order to buy 100 shares of Reliance at Price of Rs.1000 each.. Once you place an order, an order ticket gets generated containing the following details: Your Trading account number, the stock code, number shares and price per share. The broker system needs to ensure you have sufficient money to buy these shares. If yes, then this order ticket send tp the stock exchange. Once the order hits the market the stock exchange tries to find a seller who is willing to sell you 100 shares of Reliance at Rs.1000. Once the trade is executed, the settlement and clearing systems will credit the shares electronically in your DEMAT account.
The Market Index.
There are two main market indices in India. The SENSEX representing the Bombay stock exchange and NIFTY representing the National Stock exchange. The Index reflects the market trend. The index is a broad representation of the country’s state of economy. A stock market index that is up indicates people are optimistic about the future. Likewise when the stock market index is down it indicates that people are pessimistic about the future.
Index construction methodology
It is important to know how the index is constructed /calculated especially if one wants to advance as an index trader. The Index is a composition of many stocks from different sectors which collectively represents the state of the economy. To include a stock in the index it should qualify certain criteria. Once qualified as an index stock, it should continue to qualify on the stated criteria. If it fails to maintain the criteria, the stock gets replaced by another stock which qualifies the prerequisites. In Indian Stock Market SENSEX and NIFTY represent the broader markets. Sensex has 30 stocks and Nifty has 50 stocks. There are certain indices that represents specific sectors. These are called the sectoral indices. Example Nifty Bank, Nifty IT, Nifty Auto, Nifty Pharma etc..
Market Segment :
The exchange operates in three main segments.
- Capital Market – Capital market segments offers a wide range of tradable securities such as equity, preference shares, warrants and exchange traded funds. Capital Market segment has sub segments under which instruments are further classified. For example, common shares of companies are traded under the equity segment abbreviated as EQ. So if you were to buy or sell shares of a company you are essentially operating in the capital market segment
- Futures and Options – Futures and Option, generally referred to as equity derivative segment is where one would trade leveraged products. We will explore the derivative markets in greater depth in the derivatives module
- Whole sale Debt Market – The whole sale debt market deals with fixed income securities. Debt instruments include government securities, treasury bills, bonds issued by a public sector undertaking, corporate bonds, corporate debentures etc.
The Trading Terminal:
When a investor or trader wants to buy or sell in the market, he can do so by opting one of the options:
- Call the stockbroker, and trade usually called “Call & Trade”
- Use a web application ( provided by the broker ) on a computer browser to access the markets
- Use the trading software provided by the broker ( example : Trade Tiger, Alpha Trader etc.,)
Each of the above methods is a gateway to the exchanges. The gateway allows you to do multiple things such as transacting in shares, tracking your Profit & Loss,
In order to be successful in the markets, you must understand the key factors such as risk management, discipline, market timing, access to information etc.