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Equity Market
An equity market is a market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.
Breaking Down of Equity Market:
Equity markets are the meeting point for buyers and sellers of stocks. The securities traded in the equity market can be either public stocks, which are those listed on the stock exchange, or privately traded stocks.
Trading in the Equity Market:
In the equity market, investors bid for stocks by offering a certain price, and sellers ask for a specific price. When these two prices match, a sale occurs. Often, there are many investors bidding on the same stock. When this occurs, the first investor to place the bid is the first to get the stock. When a buyer will pay any price for the stock, he or she is buying at market value; similarly, when a seller will take any price for the stock, he or she is selling at market value.
Companies sell stocks in order to get capital to grow their businesses. When a company offers stocks on the market, it means the company is publicly traded, and each stock represents a piece of ownership. This appeal to investors, and when a company does well, its investors are rewarded as the value of their stocks rise. The risk comes when a company is not doing well, and its stock value may fall. Stocks can be bought and sold easily and quickly, and the activity surrounding a certain stock impacts its value. For example, when there is high demand to invest in the company, the price of the stock tends to rise, and when many investors want to sell their stocks, the value goes down.
Delivery Trading
Delivery Trading is said to be one of the secured ways of trading in stock market. If we buy shares today and sell them after 1 day then the type of trading is called as Delivery Trading.
The main advantage of Delivery Trading is that, the Fear for Loss of Money is very less when compared with Intraday Trading. Customer can take delivery for undefined period and need not sell them on the same day with loss, even if the market price of share value reduces. This is a kind of long-term investments.
Definition of 'Squaring Off'
Squaring off is a trading style used by investors/traders mostly in day trading, in which a trader buys or sells a particular quantity of an asset (mostly stocks) and later in the day reverses the transaction, in the hope of earning a profit (price difference net of broker charges and tax).
For example: Person A buys 100 shares of Reliance from the BSE Sensex through a broker for a price or Rs 10 per share. Later in the day, Person A sells all the shares for Rs 12 per share and by paying broker charges of Rs 10. The net profit A earns is Rs (200-10)= Rs 190.
Derivatives / F&O Market
What are Derivatives?
A derivative is a financial instrument whose value is derived from the value of another asset, which is known as the underlying.
When the price of the underlying changes, the value of the derivative also changes.
A Derivative is not a product. It is a contract that derives its value from changes in the price of the underlying.
Example: The value of a gold futures contract is derived from the value of the underlying asset i.e. Gold.
Derivatives are divided into 2 parts –
Derivatives
Futures Options
1. Futures
What is a Futures Contract
A futures contract is a legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future. Futures contracts are standardized for quality and quantity to facilitate trading on a futures exchange. The buyer of a futures contract is taking on the obligation to buy the underlying asset when the futures contract expires. The seller of the futures contract is taking on the obligation to provide the underlying asset at the expiration date.
Lot Size-
A lot size is the minimum quantity to be purchased when entering a particular contract. The future contract can only be brought in multiples of that lot size
Example- A lot size of Reliance future is 500qty one can only buy future of 500qty or in multiples of 500qty
Future price-
There are several factors which determines future price basically it is derived from the price of underlying assets other than this expiry date, volatility, Open Interest, etc also determines the price of future contract.
Contract Name-One can buy /Sell future of current month + 2 months maximum
Example- If you want to buy a future contract one can buy current month i.e., March one can buy for April or May.
Index Future-Index is a basket of particular stocks (Depending on the nature of index) which come together and make an index
Index futures are the future contracts of these index.
Options
What are Option Contracts?
An options contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular asset at a later date at an agreed upon price. Options contracts are often used in securities
There are 2 types of Options
• Call Option (Bullish)
• Put Option (Bearish)
Call Option –
Call option refers to the Assuming that the stock or underlying asset price will Rise. Technically a call option is defined as an option to buy assets at an agreed price on or before a particular date.
Put Option –
Put option refers to the Assuming that the stock or underlying asset price will Fall. Technically, a put option is defined as an option to sell assets at an agreed price on or before a particular date.
Contract Name (Expiry)-
Similar to future contract expiry one can buy /Sell Option of current month + 2 months maximum.
Example- If you want to buy a Option contract one can buy current month i.e. March one can buy for April or May.
Option Premium-
Premium is the amount paid to get the right.
Example-Let’s say you want to buy a house but before buying you give a token to the seller both agreeing that the Buyer may buy the said house at a particular date and at a particular price and the sell may sell the said house at that particular date and price.
So, the amount which is given to the seller i.e., token is the premium.
Premium is basically the amount required to be paid to get that particular right, As the example suggest that the buyer and seller may have right to buy/sell but not a obligation (Compulsory) the sell/buyer may deny the contract.
Option Strike Price-
Strike Price is basically a price you are quoting option for.
Example- Let take a price scale of Reliance Industries Stock
The strike price is defined as the price at which the holder of options can buy (in the case of a call option) or sell (in the case of a put option) the underlying security when the option is exercised. Hence, strike price is also known as exercise price.
Index Future-
Index is a basket of particular stocks (Depending on the nature of index) which come together and make an index
Index Options are the option contracts of these indexes
CDS / Currency
What is Currency Markets?
The currency market includes the Foreign Currency Market and the Euro-currency Market. The Foreign Currency Market is virtual. There is no one central physical location that is the foreign currency market. It exists in the dealing rooms of various central banks, large international banks, and some large corporations. The dealing rooms are connected via telephone, computer, and fax. Some countries co-locate their dealing rooms in one center. The Euro-currency Market is where borrowing and lending of currency takes place. Interest rates for the various currencies are set in this market.
Trading on the Foreign Exchange Market establishes rates of exchange for currency. Exchange rates are constantly fluctuating on the forex market. As demand rises and falls for particular currencies, their exchange rates adjust accordingly. A rate of exchange for currencies is the ratio at which one currency is exchanged for another.
MCX / Commodity
What is the Commodity Market?
A commodity market is a physical or virtual marketplace for buying, selling and trading raw or primary products, and there are currently about 50 major commodity markets worldwide that facilitate investment trade in approximately 100 primary commodities.
Commodities are split into two types: hard and soft commodities. Hard commodities are typically natural resources that must be mined or extracted (such as gold, rubber and oil), whereas soft commodities are agricultural products or livestock (such as corn, wheat, coffee, sugar, soybeans and pork).
Types of Commodities
• Metals (such as gold, silver, platinum and copper)
• Energy (such as crude oil, heating oil, natural gas and gasoline)
• Livestock and Meat (including lean hogs, pork bellies, live cattle and feeder cattle)
• Agricultural (including corn, soybeans, wheat, rice, cocoa, coffee, cotton and sugar)
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