Basics of Stock Market Explained !

 

What is stock market?

The stock market refers to the collection of markets and exchanges where the regular activities of buying, selling and issuance of shares of publicly held companies take place.

Why do companies come to Share Market?

A company enters the primary market to raise funds. It is in the primary market that a company gets registered to issue shares to the public and raise money. Companies generally get listed on the stock exchange through the primary market route.

IPO

Initial Public Offering (IPO) is the process by which a private company can go public by sale of its stocks to general public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.

Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can sell their shares to the public without raising any fresh capital.

ASBA

ASBA process facilitates retail individual investors bidding at a cut-off, with a single option, to apply through Self Certified Syndicate Banks (SCSBs), in which the investors have bank accounts.

SCSBs are those banks which satisfy the conditions laid by SEBI. SCSBs would accept the applications, verify the application, block the fund to the extent of bid payment amount, upload the details in the web-based bidding system of NSE, unblock once basis of allotment is finalized and transfer the amount for allotted shares to the issuer.

Applications Supported by Blocked Amount (ASBA) is a process developed by the India's Stock Market Regulator SEBI for applying to IPO. In ASBA, an IPO applicant's account does not get debited until shares are allotted to them.

ASBA allows the investors’ money to remain with the bank till the shares are allotted after the IPO. Only then does the money transfer out of the investors account to the company. This eliminates the need for refunds on shares not being allotted.

What is SEBI?

Securities and Exchange Board of India (SEBI) is the regulatory body for the stock market of India. It was established in 1992, under section 3 of SEBI Act. SEBI has power to regulate all market intermediaries and also to penalize them in case of fraudulent activities and unfair trade practices. SEBI has the authority to regulate and develop the stock market.

Objectives of SEBI:

▪ To regulate the activities of the stock exchange

▪ Protecting the rights of investors

▪ Preventing fraudulent and unfair activities

▪ Develop a code of conduct for intermediaries

Purpose of SEBI:

The main purpose for which SEBI was setup was to keep a check on malpractices and protect the interests of investors. It was set up in order to meet the needs of three groups: 

Issuers: To provide a marketplace in which they can raise capital easily.

Investors: To provide protection and supply of information.

Intermediaries: To provide a competitive professional market.

List of exchanges in India

1.NSE

The National Stock Exchange (NSE) is the leading stock exchange of India, located in Mumbai. It was established in the year 1992 as the first demutualized electronic exchange in the country. NSE was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system which offered easy trading facility to the investors spread across the country.

2.BSE

The Bombay Stock Exchange (BSE) is India's & Asia's oldest exchange which began 140 years ago under a banyan tree! It was India's primary exchange till the emergence of the NSE. Evolving from an open outcry system, the BSE also shifted to electronic trading mode in a record 50 Days. With increased connectivity, the BSE was the first Indian Exchange to launch Mobile Trading in 2010. Despite being 140 years old, the BSE is India's fastest exchange with 6 micro seconds!

There are few more exchanges in India which are not so active in the market.

What is DEMAT Account

DEMAT account or dematerialized account provides the facility of holding shares and securities in electronic format. During online trading, shares are bought and held in a DEMAT account, thus, facilitating easy trade for users. A DEMAT account holds all the investments an individual makes in shares, government securities, exchange traded funds, bonds, and mutual funds in one place.

In India, DEMAT account service is provided by depositories such as NSDL and CDSL through intermediaries / Depository Participant / Stock Broker. The charges of DEMAT account vary as per the volume held in the account, type subscribed, and the terms and conditions laid by the depository and the stock broker.

Benefits of DEMAT Account:

• Easy and a convenient way to hold securities.

• Safer than paper-shares.

• Reduced paperwork for transfer of securities.

• Reduced transaction cost.

• No "odd lot" problem: even one share can be sold

• Transmission of securities is done by DP, eliminating the need for notifying companies.

• Automatic credit into DEMAT account for shares arising out of bonus/split, consolidation/merger, etc.

• A single DEMAT account can hold investments in both equity and debt instruments.

• Traders can work from anywhere.

HOLDINGS

Holdings are basically shares that an investor can keep in his/her DEMAT account for long term. A holding represents the securities (stocks or bonds) held in the market. Imagine a bucket filled with rocks, the bucket is the DEMAT account and each rock is a single stock or bond holding.

The sum of all rocks (stocks or bonds) equals the total number of holdings.

What is a Depositary

A depository is a facility such as a building, office, or warehouse in which something is deposited for storage or safeguarding. It can refer to an organization, bank, or institution that holds securities and assists in the trading of securities. The term can also refer to a depository institution that accepts currency deposits from customers.

There are two depositaries in India and those are NSDL and CDSL.

National Securities Depository Limited (NSDL) is an Indian central securities depository based in Mumbai. It was established on 8th November 1996 as the first electronic securities depository in India with national coverage. It was established based on a suggestion by a national institution responsible for the economic development of India.

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Central Depository Services Limited (CDSL) is the second Indian central securities depository based in Mumbai. Its main function is the holding securities either in certificated or dematerialized form, to enable book entry transfer of securities.

 

What is Trading Account
Trading account is a special account through which you can conduct transactions. Without one, you cannot trade in stock market. A trading account shows all the transactions that are done over a period of time. It gives us complete information on the amount that has been debited & also the amount that has been credited in the Trading Account
For example: You have Rs.100 in your wallet. You go to a shop and tell the seller that you want a packet of chips, you check the price, and finalize the transaction. Then, you take the money out of your wallet and give it to the seller. In this case, the wallet acts as the DEMAT account, while you act as the trading account.

Market timings
Segment Timings
Equity & FNO= 09:15 AM - 3:30 PM
Commodity    = 09:00:00 AM - 11:40 PM or 11:55 PM
Currency        = 09:00 AM - 05:00 PM
Cross currency = 09:00 AM - 07:30 PM

General terms

INDEX

A stock index or stock market index is a measurement of a section of the stock market. It is computed from the prices of selected stocks. It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. You may often hear people speaking that the ‘market’ fell one day, or that the ‘market’ jumped. However, if you read the stock table, you will realize that not all stocks rose or fell. There were some which moved in the opposite direction. This is called INDEX.

NIFTY 50

The NIFTY 50 index is National Stock Exchange of India's benchmark broad based stock market index for the Indian equity market. Full form of NIFTY is National Stock Exchange Fifty. It comprises of 50 Indian company stocks in 12 sectors and is one of the main stock indices used in India. NIFTY 50 Index has shaped up as a largest single financial product in India, with an ecosystem comprising of exchange traded funds, exchange-traded futures and options, other index funds and OTC derivatives.

SENSEX

The BSE SENSEX is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on Bombay Stock Exchange. The 30 component companies which are some of the largest and most actively traded stocks, are representative of various industrial sectors of the Indian economy.

Volatility

Volatility is the range of price change that a security experiences over a given period of time. If the price stays relatively stable, the security has low volatility. A highly volatile security is one that hits new highs and lows, moves erratically, and experiences rapid increases and dramatic falls.

Liquidity

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price. Market liquidity refers to the extent to which a market, such as a country's stock market or a city's real estate market, allows assets to be bought and sold at stable prices. Cash is considered the most liquid asset, while real estate, fine art and collectibles are all relatively illiquid.

What is open Position?

An open position in investing is any trade, established or entered, that has yet to be closed with an opposing trade. An open position can exist following a buy, a long position or a sell or a short position. In any case, the position remains open until an opposing trade takes place.

What is margin Position?

Any position taken in the market using the Cash plus Product with the margin provided with your broker on the cash balance of the client is known as Margin position.

What is Ledger?

A ledger is the principal book or computer file for recording and totaling economic transactions measured in terms of a monetary unit of account by account type, with debits and credits in separate columns and a beginning monetary balance and ending monetary balance for each account.

What is Trade book?

A trading book is the portfolio of financial instruments held by a brokerage or bank. Financial instruments in a trading book are purchased or sold for reasons including to facilitate trading for the institution's customers, to profit from trading spreads between the bid and ask prices, or to hedge against various types of risk. Trading books can range in size from hundreds of thousands of dollars to tens of billions depending on the size of the institution.

What is Contract note?

Contract note is a legal document which every stock brokers issues to their investors who invest into shares or other listed securities through them. In normal trading cycle, when an investor wishes to invest or sell securities he contracts a stock broker.