Table of contents
- What is the role of the stock exchange in the economy ?
- When did the stock market start in India?
- How many segments are in the stock market?
- Who are the participants in the Indian stock market?
- What are the common stock market myths?
- What is volatility in the stock market, and how should you manage it?
- Stock market terms
- Key takeaways
- FAQs
What is a stock market?
The place where shares of a publicly listed company are traded is termed the stock market.
Stock market definition
The stock market is a platform where shares of publicly listed companies are traded. For an introduction to the stock market, The stock market is a platform where shares of publicly listed companies are traded.
What is the role of the stock exchange in the economy?
The stock market shows a ‘free-market’ economy. It lets investors like you choose to invest in a company.
When did the stock market start in India?
The Indian stock market did not originate in a 24-story concrete giant but under a Banyan tree. A group comprising three Gujarati and one Parsi man used to meet under a Banyan tree in front of the Mumbai Town Hall in the 1850s.
They used to trade in cotton, but something needed to be formal and legitimate.
How many segments are in the stock market?
Stock markets have two parts – primary and secondary. In the primary, a company first sells its shares. In the secondary, traders buy and sell these shares.
Take a hypothetical stock market example. In the primary market, a company like ‘A’ announces an IPO at a certain price per share. Investors buy these shares, providing the company with funds. This is the company’s first sale of shares to the public.
Who are the participants in the Indian stock market?
The members are the regulator, stock exchange, listed companies, traders, investors, and intermediaries. Each has a role in the Indian stock market.
Who controls the stock market?
The stock market regulator is like the head. As an investor, you can choose where to invest but must follow the regulator’s rules. In India, the stock market is controlled by SEBI, set up in 1992.
What is a stock exchange?
The place where shares are bought or sold is the stock market. Besides BSE and NSE, there are other exchanges in India like the Calcutta Stock Exchange and India International Exchange.
What is stock market trading? Stock market trading involves buying and selling shares of publicly listed companies on a stock exchange.
What are the common stock market myths?
Investing in stocks = gambling
People thought investing was like gambling until Rakesh Jhunjhunwalla showed it’s not. Gambling is mostly luck. But stock investing depends more on what’s happening around you.
The Russia-Ukraine conflict affected the Indian stock market. People started investing in safer things. But when the Indian festival happened, the market improved.
Returns directly proportional to the risk
Stock investing involves risk, even with research. High-risk investments can yield high returns, but not always. Believing otherwise is a risk. Investors can still profit from safer options.
What is volatility in the stock market, and how should you manage it?
‘Market volatility’ is about how often and how much prices change. More frequent and bigger changes mean higher volatility.
Investing in stocks is tough. If it was easy, everyone would be rich. Because of volatility, you need to study the market before investing.
How to measure market volatility?
To find a stock’s market volatility, calculate the standard deviation of price changes over time.
Let’s find stock ‘X’s market volatility over a day.
Closing price on Day 1 = 570 and on Day 2 = 575
Daily returns would be = (575 – 570) x 100/570 = 0.8%
Standard deviation over the day = square root of daily returns = 0.89%
No. of trading days in a year is 252.
Standard deviation over a year = 0.89 x square root of 252 = 14.12%
The share price of Stock X will deviate up to 0.89% on either side within a day. Similarly, the share price will increase or decrease by 14.12% within a year.
How much volatility is normal?
According to Forbes, market volatility of 15% from your average returns is the bare minimum you should, have during any year under consideration. But you can expect around 30-35% variation in returns approximately once in five years.
Stock market terms
Buy – It is a stock market action in which an investor bids money to purchase shares of a company at a specific price.
- Sell – It is the stock market action in which the investor/trader sells the shares of a particular stock at a specific price.
- Bid – It refers to the “highest” price a buyer would pay to purchase a specific number of shares at any given point.
- Ask – Contrary to ‘bid’, ‘ask’ refers to the lowest price at which a seller would sell a specific number of shares at any given point.
- Bull – A bull market signifies rising asset prices, stimulating buying activity. It reflects a prosperous economy and increased consumer spending.
- Bear – A bear market denotes falling asset prices, triggering a sell-off. It symbolizes an economic downturn and reduced consumer spending.
Key takeaways
- A stock market is defined as a place or platform place where shares of a publicly listed company are traded.
- The stock market is one of the many indicators of a ‘free-market’ and ‘democratised’ economy.
- The term’ market volatility’ is defined by two aspects – frequency and magnitude.
FAQs
To teach yourself about stocks, start by reading books and articles on stock trading. Join online trading communities for discussions and insights. Use online platforms for practice trading. Listen to investing audiobooks and take online courses. Analyze market trends and company fundamentals. Keep a trading journal to track your progress and continuously educate yourself. Remember, learning about stocks is a continuous process.
Intraday trading involves buying and selling securities within a single day. Traders analyze price patterns to maximize profits. In intraday, positions must be squared off the same day, regardless of profit or loss. Unlike regular trading, there’s no change in share ownership. Traders use strategies like scalping or momentum trading to exploit intraday price swings. It requires a sharp sense of market behaviour.
To buy stocks, you need to open a brokerage account. Add funds to this account, then select the stocks you want to invest in. Ensure you have sufficient funds in your bank account for the purchase. Buy the stocks at their listed price and specify the number of units. Once a seller accepts your request, the transaction is completed, and the shares are transferred to your account.
Intraday trading involves buying and selling stocks within a single day. To earn daily, select liquid shares, set a stop loss, and book profits at the right time. Avoid trading in the early and last hours of the day. Practice paper or virtual trading before actual trading. Remember, not every day provides opportunities for trade, and daily targets may lead to heavy losses.
To sell shares, you need a brokerage account. Locate the stock you want to sell on your broker’s trading platform and execute a sell order. Ensure you have sufficient funds in your bank account for the transaction. Once a buyer accepts your request, the transaction is completed, and the shares are transferred from your account. Remember, brokerage fees and taxes like the securities transaction tax may apply.