Find Out What Is The Share Market.
Talk of share markets or stock markets, and you still recollect a lively place bustling with traders, shouting quotes and closing deals. Of course, with electronic trading, those days are long gone in India. Today if you talk about the share market in India, and benefit of equity share capital or the equity market in India, the most dominating picture is still the imposing BSE building. But that is not the point. The focus is here on getting the hang of the share market basics. It is about understanding the share market and how it works, including the detailed modus operandi of buying, selling, transferring, clearing and settling shares.
A share market is like any other market which brings buyers and sellers together. A share market is a place to buy and sell stocks of listed companies. A market is created when people are willing to buy a stock and are ready to sell the stock. Everyone dreams of taking benefit of stock market investment and make big profits in the stock market, but that is easier said than done. Generally, making profits in the stock market is a long-drawn and gradual affair that calls for an in-depth understanding of industries, sectors and companies. Therefore, it needs a lot of share market information to be absorbed and understood and a plethora of share market and stock details to be analysed. Here is a quick rundown.
Table of Content
Understanding the business of share markets
The stock market and share market are used synonymously. The share market is a UK usage, and the stock market is a US usage, although they both mean the same thing. You would be surprised that the Bombay Stock Exchange is the oldest in Asia, with a pedigree of more than 140 years. But what does the share market do? It is a place for the allocation of capital. For instance, companies wanting to raise funds for their business expansion or diversification can do so through the IPO segment of the share market. Investors who wish to take the risk and invest in such companies can invest their money in such stocks where they see good prospects for the future.
What happens when you buy a share? Even if you buy one share of Reliance Industries, you become part owner of the company. Of course, voting rights will be commensurate with the holdings, but that is a different issue for now. The stock price is determined by forces of demand and supply in the share market, and this is continuously fine-tuned by research analysts trying to find out the exact value of a stock. This is a continuous iterative process. Every investor intends to buy at a low price and sell a stock when the price goes higher. Alternatively, they want to sell their holdings at the peak to buy back the stock at lower levels. The same investors can be buyers and sellers.
Cash market, F&O market and grey market
Most people dealing in the stock market must be familiar with or, at least, have heard of these terms. What exactly are they?
The cash market is the market for immediate settlement of transactions. In the Indian context, it is T+2 and gradually moving to T+1. Shares you buy today get credited to your demat account on a T+2 date. Shares you sell today; the funds get credited to your bank account also on T+2 day.
Unlike the cash market, the futures market is the securities exchange at a specified future date. They allow you to buy or sell an underlying stock or index at a price on a future date. Options are derivative contracts. The buyer has unlimited rights and limited seller rights. India’s futures and options market is more than 90% of the daily trading value.
The Grey market is not a formal market but an informal market. Here IPO premiums are traded informally and given an approximate indication of the listing price. The Grey market is irrelevant once the stock gets listed on the stock exchange and starts trading.
Understanding stock exchanges, delivery trading and volumes
In India, there are two principal stock exchanges, viz. NSE and BSE. The NSE is much newer and only came into existence in 1994. However, it has picked up volumes due to being a pioneer in electronic trading. Also, NSE became a natural choice for futures and options trading when it was introduced in 2001. However, BSE gives you a lot more choice in terms of stocks as it has more than 4,000 stocks listed on the stock exchange.
Let us turn to delivery in stock markets. In simple terms, delivery-based trading entails buying and holding shares for a certain period. The shares you bought for delivery will be held in your Demat account. Once you take delivery of shares, you have to make the full payment and can keep these shares as long as you want. This is the preferred mode for long-term investors. The opposite of delivery trading is intraday trading, where there is no delivery, and the profits/losses are adjusted at the end of the day.
Let us finally turn to volumes in the stock market. Volumes are an essential measure of how reliable it is to trade in the stock. It shows the number of stocks traded (executed trades) on an average trading day. The higher the volumes, the higher the liquidity and the lower the stock spread risk. You get the best pricing for buying and selling only in higher-volume stocks. Besides volumes, the traders also closely track parameters like increase in volumes, fall in volumes, multiple volumes, drying up of volumes etc.
Indices, online trading and mobile trading
Indices are benchmarks to compare stocks. India's most popular general indices are the Sensex 30 on the BSE and Nifty-50 on the NSE. Other sectoral and thematic indices are also on the stock exchanges. Index performance over a more extended period is a barometer of wealth creation.
Let us now turn to online trading. It entails buying and selling shares through a broker's internet-based trading platform. Once you activate your online internet trading account, you can open the website on your PC or laptop, go through the security checks, and start trading—no need to call a dealer. The trade, the execution and the confirmation are right in front of you. An extension of online trading is app-based mobile trading. It has picked up sharply in the last few years and promises to be the road ahead.
What are the sources of market information?
Your broker shares daily technical and fundamental reports. In addition, you get lots of information from newspapers like Economic Times, Business Standard etc. In addition, channels like CNBC India and ET Now are dedicated to stock market trading and investing.
While all these sources are available, it is best to use your discretion while trading and take a view after careful consideration. Read research, use screeners, and you are all set to change in the stock markets.
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