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Stock Market Institute in Delhi
Stock Market Institute in Delhi
WHY DO WE INVEST?
To make sure we have enough funds to be prepared for the future. Simply earning and saving is
not enough. Inflation the price-rise beast eats into the value of your money. To make up for
the loss through inflation, we invest and earn extra. This is the investment fundament. The stock
market is one such investment avenue. It has a history that goes way back to the 1800s.
Earlier, stockbrokers would converge around Banyan trees to conduct trades of stocks. As the
number of brokers increased and the streets overflowed, they simply had no choice but to
relocate from one place to another. Finally in 1854, they relocated to Dalal Street, the place
where the oldest stock exchange in Asia the Bombay Stock Exchange (BSE) is now located. It
is also Indias first stock exchange and has since then played an important role in the Indian
stock markets. Even today, the BSE Sensex remains one of the parameters against which the
robustness of the Indian economy and finance is measured.
So Lets Start With Share Market Basics.
WHAT IS SHARE MARKET?
Different companies issue varied amounts of shares when they get listed. The value of
one share also differs from that of another companys stock. Market capitalization
smoothens out these differences. It is the market stock price multiplied by the total
number of shares held by the public. It, thus, reflects the total market value of a stock
taking into consideration both the size and the price of the stock. For example, if a
stock is priced at Rs. 50 per share, and there are 1,00,000 shares in the hands of public
investors, then its market capitalization stands at Rs. 50,00,000.
WHAT DOES COST AVERAGING MEAN?
Rupee-cost averaging is a concept when you buy a stock in small bunches, instead of
buying in lump-sum. This helps reduce the average cost of your investment.
Let us use an example. Suppose you bought 100 shares of a company costing Rs. 10
each, your total investment cost is Rs. 1000. Instead of that, if you buy 50 shares for
Rs. 100 and 50 for Rs. 95, your total cost of investment would be lower. Not just that,
even your average cost per share would be lower. This is called rupee-cost averaging.
This concept comes handy when a stock falls after you have bought it. The fall in share
price gives you an opportunity to buy more and reduce your average cost of
investment. This way, when you finally sell the shares at some time in the future, you
end up making more profits.
Chapter 1.3: HOW DOES SHARE MARKET
WORK?
Ask any layman about the share market investing, and they will tell you that they
dont know about stock trading. Yet, the stock market is one of the largest avenues
for investment. As many as rs. 6 lakh crore-worth stocks have been traded in the
two stock exchanges in india on some occasions. Stock market investing is often
called a gamble. It would cease to be a gamble if you understood the basics of the
share market.
In the previous section, you were introduced to the different market participants
and other share market basics. Lets try to stitch these narratives together and
understand how the stock market works.
STOCK MARKET PARTICIPANTS
Once listed, the stocks issued can be Stock brokers and brokerage firms are
traded by the investors in the secondary entities registered with the stock
market. This is where most of the trading exchange. They act as an intermediary
happens. In this market, buyers and between you, as an investor, and the
sellers gather to conduct transactions to stock exchange
make profits or cut losses.
Your broker passes on your buy order to The exchange ensures that the trade is
the exchange, which searches for a sell honoured during the settlement#.
order for the same share. Once a seller Whether the seller has the required
stock to sell or not, the buyer will
and a buyer are fixed, a price is agreed receive his shares. If a settlement is not
finalized, upon which the exchange upheld, the sanctity of the stock
communicates to your broker that your market is lost, because it means trades
may not be upheld.
order has been confirmed.
HOW YOUR ORDER IS PROCESSED
WHAT ARE STOCK INDICES?
From among the stocks listed on the exchange, some similar stocks are selected and
grouped together to form an index. This classification may be on the basis of the
industry the companies belong to, the size of the company, market capitalization or
some other basis. For example, the BSE Sensex is an index consisting of 30 stocks.
Similarly, the BSE 500 is an index consisting of 500 stocks.
The values of the grouped stocks are used to calculate the value of the index. Any
change in the price of the stocks leads to a change in the index value. An index is thus
indicative of the changes in the market.