The
stock market is a place where most people seeking quick cash in life arrive. Many
of us are already familiar with top-notch stock companies like Reliance, TCS,
ONGC, HDFC, SBI, Coal India etc. Purchasing stock from our favourite company
can be tempting, but we can’t make decisions based on our personal preferences.
We’ve to look for shares in a strong company, based on its market reputation,
share prices, management and industry growth.
Here
are basic terms that sketch a brief outline of Indian stock market.
1)
Stock and Shares:
People
use both ‘stock’ and ‘shares’ as interrelated terms, however, there is some
distinction between the two. “Ownership rights of a specific company denote
your power over it”, which is known as shares.
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Stock
refers to “Ownership certificate pertaining to any company, known at different
levels by names like equity, security and derivatives”. A person who owns stock
in a company is known as stockholder. People who own maximum stock of a company
(at higher levels) exercise more power on it and are designated at different
levels as Founder, Managing Director, Chairman etc. They are major stake
holders in the company.
2)
Company Board:
The
company board constitutes of owners who’ve rights over the company. They may
operate as: Sole proprietor (a single owner is in charge of the board), Private
Limited (multiple owners are in charge), Public Limited (when ownership is
distributed to general public through shares and stocks.). Shares and stocks of
a large company are listed on stock exchange. People can access stock exchange
data to sell or buy stocks.
Ownership
rights of a person are determined by number or percentage of stocks they hold.
3)
Stock Market:
Stock
market is a place where people buy and sell stock. It is similar to malls,
supermarkets or rather ‘mandi’ in a
layman’s words. Trading is guided by the rates listed on BSE (Bombay Stock
Exchange) and NSE (National Stock Exchange of India). Due to availability of
internet worldwide, people can trade anywhere via mobiles and computers.
Investors
must have a demat account and online trading account to sell and buy stocks.
4)
Share Market:
Share
market is bifurcated into two types: Primary and Secondary Market.
In
the primary market, companies, corporate groups and government organizations
list their own shares and financial solutions under IPO (Initial Public Offer)
in order to list them on major stock exchanges. Trading is not allowed here.
Once listed in primary market, shares enter secondary market for investments.
Secondary
market receives listings from primary market and opens up trading (selling and
buying) prospects for investors and traders.
5)
Investors:
Investors
are traders who analyse the fundamentals of a company and buy their shares.
They hold shares/stocks for a long time (days to years). They may sell them
when the prices are right. The process is known as investment.
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6)
Traders/Trading:
Traders
buy and sell stock or shares on a short-term basis, known as trading. When
people sell and buy stocks on the same day, it is known as intraday trading or day
trading. When we hold stocks for some time and sell them after some days, it is
known as delivery. Traders are usually not concerned about company’s
performance. They perform regular trading with low profit margins.
7)
Investment:
Finance
investments can be short-term (offering low profit margins) or long-term
(offering bigger margins, depending upon company’s performance). Short term
investments are done based on daily news and analysis charts whereas long term investments
are done after thorough analysis of company’s fundamentals and market growth.
Long-term investors are not affected by ups and downs of daily market.
The
main objective of any investment is to buy stocks when share prices are
undervalued, but selling them at a point in future when their rates are high.
8)
Brokerage:
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A brokerage (like us) is the middleman between
a corporate firm and investors. They perform market analysis, keep tabs on a
company’s progress and provide financial advice to their clients. In short,
they facilitate the selling and buying of stocks. In return, they obtain a
fraction of client’s earnings or charge a flat fee per executed order for their
services.
9)
Indices:
A group of stocks, which directs the entire
market, is known as Index. High liquidity stocks (present in high volume) and
high market capitalization stocks (we get that by multiplying the current stock
price with their availability number for companies that have the most expensive
and highest number of stocks) constitute stock index.
Stock index represents the ups and downs of
stock market. In India, stock market is guided by Bombay Stock Exchange
‘Sensex’ (consisting of 30 stocks) and National Stock Exchange ‘Nifty 50’
(consisting of 50 stocks).
10) Online Trading Account:
Online trading account is a registered account
provided by your broker or company, for conducting trade related transactions.
It is used for managing shares that are available for trading on stock
exchanges. They’re marked by unique trading IDs. You login to your account
using a secret code or password your provider provides you. This account is
used for buying and selling stocks and keeping day-to-day market reports.
11) Demat Account:
Dematerialization of stocks is known as Demat.
In this process, an investor receives his shares in depositories (physical
certificates are converted into electronic form), which is them maintained in
an account with Depository Participant (like brokers, finance agencies and
banks). This account is necessary for holding shares. All your purchases shall
be displayed on your account in a list format.
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Opening a demat account is easy and hassle free.
Many brokerages offer low flat rates for this purpose.
12) Depository:
Depository is like
a storage house, responsible for maintaining investor securities (shares,
bonds, derivatives or other investments). Data is maintained in electronic
form. As of now, two famous depository organizations of India include ‘Central
Depository Services Ltd.’ Or CDSL and National Securities Depository Ltd. or
NSDL. Agents ask investors to open a demat account under either of these organizations.
SEBI (Securities and Exchange
Board of India), which is appointed by Government of India regulates NSE and
BSE stock exchanges. This body has made it mandatory for investors to maintain
a demat account for listing shares and trading. You can open a demat account
with 0 share balance.
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