stock market basics

stock market basicsIntroducing Stock Market Basics

History

In 1782 in America, world’s first stock market came into existence. Prior to this in huge wall compound fights between four types of animals were arranged. People used to earn money on the strength and weakness of these animals. Financial market adopted the same technique and “Stock Exchange” Was born. Later on, the building was built for the stock exchange. American stock exchange was named “Wall Street” after above-stated wall. Those animals used to for fight were Bulls, Beers, Hogs, And Sheep. Each of them is having following characteristics.

Bulls – Strong and Aggressive
Beers – Weak and Timid
Hogs – Senseless
Sheep – Intelligent and Analytical

Indian Stock Exchanges

In 1875 an association was formed by name “Native & Stock Brokers Association”. It was managed by Bombay Stock Brokers and later on, that name was changed to “Bombay Stock Exchange” (BSE). More than Six thousand stocks are listed on BSE.

Another stock exchange “National Stock Exchange” was established at national level having 1700+ stocks listed. Also, 22 regional stock exchanges exist in India.

Basics

Investor

Any person who invests money in shares, debentures, bonds, government securities or public issues for growth or higher returns referred as an investor. Returns on investments are dependent on “Risk / Reward Ratio”. Investments should be made to get higher returns along with preservation of capital.

Stock Broker

Stock exchanges are having registered members, which are authorized to deal in Shares. They provide services to investors and traders for purchasing and selling of shares. One main stock broker can have many stock brokers working with him which are paying the “Brokerage” to him.
Any person who wants to do the purchase or sale of any stock exchange related things must deal with the broker registered with SEBI (Securities Exchanges Board of India) and authorized by them.
Always ask for “Contract Note” from stock broker whenever you are buying or selling a share. and verify the correctness of the transaction.
Always issue “Instruction Slip” on the same day otherwise your sold shares will be Auctioned leading to heavy losses.

“DMAT ACCOUNT” is used to hold the shares. Your purchased shares are transferred to your DMAT account. If you don’t have DMAT account and you are purchasing the shares. Those are kept with the broker hence he will receive all benefits such as Dividend, Bonus, Right Issues etc.

Investment Planning

Due to high-risk prone and highly volatile nature of stock markets don’t try to make money faster. Steady and consistent investment over a period of time can give good results. First, make calculations for how much money is needed for once life. Keep it aside and remaining excess amount I, e. 20% of the total surplus amount you can invest in stock market. Again keep in mind that your view of investment should be long term 3 to 5 years.

Selecting Shares to Invest

Listed stocks on exchanges are divided into groups. Shares in “A” group are fundamentally very strong with good management. While investing choose only share from “A” group. The company should be an industry leader in that segment (pharma, metal, banking, etc) having best product with strong financials along with long years of experience.
Check for the past dividend paying history. Choose company only if it is paying high dividends. Such companies are daily traded with high volume. One can easily find the investor selling or be buying these shares anytime.
Never buy stocks on “52 Week” high prices as that may come down. If the share price is 35% to 40% less than the “52 Week” high price then one can consider it to buy.

Accounting

Any investor must keep the records of past transaction he made. Maintain separate records for shares purchased and sold as per the settlement. Similarly, maintain separate profit and loss account for daily transactions. Always make all payments by cheque.
Verity the account statements you are receiving from broker against records you are maintaining.

Sensex

Sensex is an index on BSE, which comprises of top 30 companies’ shares. It basically indicates the movement in the top 30 shares. Also, keep an eye on world markets such as i. e. “Dow Jones” and “NASDAQ” of USA, “Nikkei” of Japan, and “Hangsang” of Hongkong, “Kospi” of Korea, FTSE of UK, DAX of Germany etc. this will help to know the sentiments of the world share markets.

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